Opinion: This might shock newcomers to Texas: Soaring property taxes
Texas is once again witnessing the higher population growth in the country as people increasingly migrate to what they see as the fiscal promised land.
As greater job opportunities and certainly “warmer” (often very hot) weather await them, the impact on their wallets in terms of taxes and fees may have them wondering if they should look elsewhere. their coveted realm of economical milk and honey.
Texas has no personal income tax – a significant advantage over states like California, New York and New Jersey which have high tax rates. According to the Tax Foundation, the state’s total tax burden is the sixth lowest in the nation.
However, for many new residents, including some retirees, the overall tax burden may not be much less than in the state they left. That’s because Texas state and local taxes fall disproportionately on low-income people. That is, the lower a taxpayer’s income, the higher the percentage of income paid in taxes. In fact, the state is currently ranked 46e in tax progressivity.
Texas’ tax regressivity is primarily the result of its heavy reliance on sales taxes in the absence of a state income tax. Texas has an average combined state and local sales tax of 8.20%, ranking it 14e among the states.
He also has the sixth highest property tax, after New Jersey, Illinois, New Hampshire, Vermont and Connecticut, according to the Tax Foundation. Without income taxes to share with local governments, property taxes are not only high but have increased dramatically during the last years. For example, someone buying a house in Leander, America’s second fastest growing city which sits just outside Austin, at the Travis County median market price of $632,208 would pay $14,150 in property taxes.
In large part, the increase in property taxes can be attributed to both soaring house prices and the resulting increase in tax assessments, as well as the need to fund infrastructure (such as schools , roads and utilities) needed to accommodate the influx of newcomers.
Texas has been cited as having the second most overvalued housing market in the country. And, of course, tenants cannot avoid these property taxes to the extent that landlords are able to raise rents.
“Property taxes for a home in fast-growing Leander just outside Austin at the median market price in Travis County are $14,150. ”
Of course, some people may view excessive property taxes as a reasonable payment for high-quality local services, especially schools. But such a justification cannot be used by residents of certain “must-visit” areas, such as Austin, Dallas and Houston, as well as some of their suburbs. By Texas’ Robin Hood program, the state must “claw back” property taxes from “wealthy” school districts and distribute them to their poorer brethren.
Beyond property taxes
The cost of travel, such as high sales and property taxes, can be another financial blow for new transplants. Texas has 47 toll road facilitiesthe highest of all the states and fourth highest in terms of toll miles. Toll costs will be particularly onerous for low-income people since tolls, like sales taxes, are notoriously regressive.
Consistent with conventional wisdom, motorists in Texas benefit from relatively low gas prices. These are attributable at least in part to one of the the lowest gasoline taxes in the country. However, this advantage may be offset by Texas’ urban sprawl and lack of public transit options that force people to travel longer distances and therefore consume more gas.
Potential Texas transplants can hope that Texas will somehow make its tax system more progressive. Granted, Governor Greg Abbot has pledged to cut property taxes, but his proposals so far would likely be mostly benefit small business owners and have minimal impact on the overall state tax structure. Beto O’Rourke, his opponent in the upcoming November election, has proposed legalizing and taxing marijuana as a way to generate new revenue. Needless to say, few experts think Texans can fight their way to tax fairness.
Serious property tax reform will likely only occur if the state imposes a statewide income tax. This, of course, is effectively irrelevant. In 2019, voters approved a constitutional amendment banning an income tax unless 2/3 of the legislature votes to repeal the amendment and triggers a statewide election to impose the tax.
The great state of Texas undoubtedly has a lot to offer newcomers in terms of food and culture, urban and rural living, fewer government regulations and, of course, its incredible history. And the the business climate is certainly favorable for people wishing to start a new business. However, new residents would be wise to calculate some financial numbers before moving to the Lone Star State. They may find that crossing the Red River is not the equivalent of crossing the Jordan.
Michael Granof is EY Professor Emeritus of Accounting at the McCombs School of Business at the University of Texas at Austin. Martin J. Luby is an associate professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.
More from MarketWatch
Even wealthy buyers are feeling the heat: Sales of luxury homes fall nearly 18%, the biggest drop since the start of the pandemic
As Elon Musk moves Tesla to Austin, some surprising lessons about low taxes and economic growth from Texas and California
Where should I retire? I want good weather, lower taxes and access to ethnic groceries. ‘Why is it so hard to tick all the boxes?’