Property taxes are the major source of support for local public services – schools, emergency services, roads, parks and libraries. They are also among the most unpopular of all state and local taxes. Many taxpayers complain that their property tax bill can go up, even if their ability to pay that bill does not. So let’s take a look at Texas tax trends, as measured by the growth in statewide personal income compared to the growth in the statewide property taxes. This comparison can show whether property taxes have, in fact, grown faster than the ability of Texans to pay them.
The chart below, based on data from the State Comptroller and the U.S. Census Bureau, demonstrates that, from 1993 to 2013, statewide personal income and the statewide property tax collections have grown at similar rates. Compared to 1993 levels (set at 1.0 in this chart), both property taxes and personal income have roughly tripled – reflecting population growth, inflation, and increased prosperity.
You can see that property taxes dipped after the Legislature required school districts, which account for more than half of all property taxes, to cut their tax rates by one-third as part of the 2006 school finance bill. Growth in personal income slowed during the economic recessions that started in 2001 and 2008-09. But the general pattern of growth in both property taxes and personal income is similar over the past two decades.
Why start the chart in 1993?
In the mid-1990s Texas had finally recovered from a deep recession caused by the collapse of oil prices in the late 1980s and established the current tax structure, including raising the rates of major state taxes, such as the sales, motor-vehicle sales, and gasoline taxes. In addition, in 1993 the Legislature created the school finance system that controls school property taxes, including the “Robin Hood” provisions, also known as recapture.
Why pick statewide personal income?
Personal income – wages, salaries, dividends, interest, sole proprietor’s income – is the best measure of the ability of Texans to pay taxes. By comparing statewide personal income to statewide property taxes, we get the best picture of changes in the ability of Texans overall to pay the taxes necessary to provide the public services on which we all rely. Of course, in those areas where home values are increasing rapidly, an individual family’s tax bill can increase faster than family income. But, looking at the state as a whole, property taxes and personal income have grown at about the same rate over the past twenty years.
Why not use median household income?
Think about a city or county where the population has doubled. Property taxes would probably also double, reflecting the extra costs of providing services to twice as many people. But the amount of property taxes paid per household would stay constant – twice as many people paying a constant amount of money would generate twice as much money. So, even if median household income had not changed, the higher property tax collections would not take a greater percentage of the average household’s income.
What to do to ensure property taxes stay affordable:
- Allow cities, counties and special districts to offer a flat-dollar-amount homestead exemption
- Lower the interest rate charged on property taxes deferred by homeowners age 65 or older
- Make clear in the Notice of Appraised Value how much property taxes are reduced by homestead exemptions, freezes, and caps on appreciation.