Texas’ property taxes have been a source of widespread contention for more than 20 years. There are many potential reasons why the property tax system in Texas is so controversial, including the structure of the property tax system, the piecemeal approach to reforming the system over the last two decades, the magnitude of the tax burden, and the differences in taxpayers’ circumstances and tax liabilities across taxing units.
Following recent attempts to and ongoing discussions about how to reduce the growing magnitude of the property tax burden, this paper examines the economic effects of two options for eliminating the school maintenance and operations (M&O) property tax.
The first option slows state spending growth to finance elimination of the school M&O property tax. The second option increases the state sales tax to finance elimination of the school M&O property tax. The simulations show that both options lead to increases in gross domestic product, aggregate private consumption of goods and services, investment, and the capital stock, as well as leisure or employment or both, depending on assumptions regarding migration and labor supply. In particular, assuming Texas is a small open economy, employment could increase by roughly 183,000 under the first option and 217,000 under the second option soon after reform.
Read the full paper at Texas Public Policy Foundation.
