Texas property owners pay the seventh-highest property taxes in the country. Largely because the state does not have an income tax, property taxes are essential for the services provided by our schools and local governments: education, health care, public safety, roads and infrastructure, criminal justice, the workforce, and much more.
The current two-year state budget for 2026-27 includes $51 billion in school property tax cuts passed since 2019. The infamous “surplus” lawmakers used as cover for those cuts in 2023 and 2025 is just about gone, but they will continue to cost the state billions every biennium.
Late last year, Gov. Greg Abbott and Lt. Gov. Dan Patrick announced separate plans for even more property tax cuts in 2027. Can Texas afford more and still fund vital public services?
Gov. Abbott’s Plan
Abbott proposed an ambitious plan that would impose tax and spending limits on local governments and threaten to eliminate school property taxes entirely.
Limits on local government
- Limit local government spending either to a 3.5% increase or population growth plus inflation, whichever is less.
- Require a two-thirds voter approval for local tax increases.
- Force an election to roll back local tax increases if 15% of local registered voters sign a petition.
Local governments have seen their costs go up dramatically in recent years due to steady population growth and high inflation on goods and services – everything from health insurance to fire trucks to asphalt. The cost of maintaining current services has grown by double-digits in some Texas communities and well over 3.5% in many others. The governor’s proposed 3.5% cap on spending increases would force many cities and counties to make cutbacks on the necessary services they provide.
Furthermore, by requiring more elections and a supermajority, the governor’s proposals on tax elections would allow small groups of anti-tax crusaders to interfere with the operations and autonomy of local governments and schools. Local officials do their jobs transparently and are held accountable for budget decisions at public hearings as well as on election days. Forcing endless elections to set tax policy gumsup the works for everyone.
Changes to appraisals
The governor’s plan would require properties to only be appraised once every five years. His plan would also lower the homestead appraisal cap from 10% to 3% and apply it to all properties.
The Texas constitution requires property to be taxed uniformly according to its market value. To meet that standard, and to avoid favoring certain property owners over others, appraisals must be as accurate and as fair as possible. A tighter appraisal cap and less-frequent appraisals would severely widen the gap between appraised values and market values, favoring older, more established homeowners over new buyers. When taken to an extreme, like in California under Proposition 13, appraisal caps can highly distort the property market and strangle it for generations. (For more, see this Institute on Taxation and Economic Policy report.)
Eliminate school district property taxes for homeowners
Most significantly, Gov. Abbott’s proposal would allow Texans to vote on eliminating school property taxes for homeowners. Overnight, this would shift virtually all the responsibility of funding our public schools onto renters and businesses. Giving homeowners this huge, costly free pass hardly seems like “equal and uniform” property taxation.
School district property taxes provide about half of the necessary funding for our public education system, around $40 billion face an approximately $20 billion budget gap every year, or $40 billion every biennium. The governor’s plan does not suggest an alternative source to replace the lost property tax revenue.
The Legislature could opt to raise the sales tax rate to make up for the lost revenue. If it did, according to the Texas Taxpayers and Research Association, the sales tax rate would have to be increased from 8.25% to 13.63%. Because the sales tax is regressive, low-income Texans would pay an unfair proportion of that. Sales tax revenue is also much less reliable in economic downturns.
Alternatively, the Legislature could choose to increase the school property tax rate on businesses, shifting tax responsibility from homeowners. Such a policy would merely incentivize businesses either to push for expanded economic incentive programs or to relocate elsewhere, making Texas a less friendly environment for business – not exactly on-brand for the “Texas Miracle.”
Lt. Gov. Patrick’s Plan
Lt. Gov. Patrick has urged caution about more tax cuts and explicitly acknowledges the fiscal constraints our state is likely to face in the near term. In a more modest approach, Lt. Gov. Patrick’s plan would continue to increase the homestead exemption (the untaxed portion of a home’s value for a taxpayer who lives in that home).
More increases to homestead exemptions
In 2015, the school property tax homestead exemption was $15,000. Through legislative action, it has grown to $140,000 today. Additionally, seniors 65+ receive a bonus homestead exemption of $60,000, and their tax level is “frozen” as long as they live in their home.
With the increases passed in 2025, the homestead exemption now costs the state more than $7 billion a year–enough to increase the base level school funding by nearly $1000 per student. Increasing the homestead exemption is the most equitable way to lower homeowners’ taxes, but at this point, it represents a substantial cost to the state while offering no benefit to the 37% of Texas households who rent.
The Lt. Gov.’s plan would add another $40,000 to the current $140,000 homestead exemption for all homeowners. Additional tax breaks offer diminishing returns for most homeowners and greater returns for wealthier ones. Lower-income homeowners already benefit from existing exemptions.
The centerpiece of Lt. Gov. Patrick’s plan is the “double nickel,” which would extend the senior bonus exemption and tax freeze to homeowners 55 and up. Yet homeowners 55-64 are likely to be still employed and, in fact, are probably in their peak earning years. Giving bigger tax breaks to those homeowners would shift even more tax responsibility onto younger, lower-income Texans.
Every Texan’s Take
Taxes represent our financial stake in self-governance and a healthy democracy. All Texans should share this responsibility to ensure our communities can thrive.
However, tax cuts ultimately make the system less fair. As long as Texas’ tax system remains upside-down, low-income Texans will bear the brunt of our state’s underinvestment in our people and our public services. Instead of pushing tax cuts that advance ideological attacks on public institutions for the benefit of their wealthy friends and donors, state leadership should focus on strengthening our schools and communities by preserving revenue that sustains them. When local property taxes are undermined, communities often must resort to other funding methods, including raising sales taxes or increasing fines and fees.
The right approach is to find a balance that helps taxpayers who need it the most while working closely with schools and local governments to ensure they remain properly funded and are not forced to cut vital services as they face other fiscal pressures from inflation and the implementation of school vouchers. Every Texan believes any property tax relief should be targeted to low-income Texans: renters, many first-time homebuyers, and many seniors as well. Yet, Lt. Gov. Patrick’s 55+ homestead exemption and Gov. Abbott’s tighter appraisal caps extend costly tax breaks to those who need it the least: wealthy, established homeowners who are still in the workforce.
Tools such as circuit breakers, tax credits, and renters’ rebates can help housing affordability for low-income Texans at a lower cost to the state. Circuit breakers are a versatile policy, used in 29 states, to cap property taxes for low-income homeowners or renters.
In the meantime, we can find additional revenue while working to make the system fairer. We could save billions in state dollars, for instance, by ending certain tax exemptions including the high-cost gas exemption, the data center exemption, or tax exemptions on certain business and professional services.
We are confident that a People’s Budget will help Texans share their stories and needs- proposing a path to more stable government revenue and lower taxes for most Texans, all while maintaining vital investments to preserve our democracy. To share your voice and explore the data from our listening tour, click here.