Testimony to the Texas Local Government Committee

This testimony was delivered to the Texas Local Government Committee on Aug. 1, 2025.

Introduction

This paper discusses the macroeconomic effects of eliminating the property tax and replacing the revenues by raising the sales tax rate. The reform analyzed in this paper assumes that the increase in sales tax revenues is accomplished by increasing the sales tax rate, instead of broadening the tax base. Since property taxes are imposed by local taxing units (cities, counties, school districts, and other special purpose districts) it is assumed that higher sales tax revenues will replace the revenue decline from eliminating the property tax.

The paper is organized as follows. The following section provides a brief review of property taxation in Texas and briefly discusses the academic literature on the property tax. Section III describes the dynamic overlapping generations computable general equilibrium model we use to simulate the property tax reform outlined above. Section IV provides the simulation results and Section V summarizes the report. An appendix provides a variety of more technical details of the analysis.

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