Texans Property Taxes are High Because Texas Politicians Like it That Way

States compete using various means to attract new businesses and residents to drive economic growth. For instance, CNBC ranks America’s Top States for Business with criteria such as Cost of Doing Business, Infrastructure, Business Friendliness, and Technology and Innovation. It also includes criteria that are more focused on residents, including Life, Health, and Inclusion and Cost of Living. Getting under the hood on these categories, it seems as if the primary factor in CNBC’s rankings is a state’s willingness to spend taxpayer money to the benefit of business.

The Rich States, Poor States ranking by the American Legislative Exchange Council takes a different approach. Its ranking criteria include Top Marginal Income Tax Rates, Property Tax Burden, Public Employees Per 10,000 of Population, Right-to-Work State?, and Tax Expenditure Limits. While both rankings take into account costs on businesses, Rich States, Poor States places greater value in factors that move a state toward “life, liberty, and the pursuit of happiness,” such as lower government spending, less regulation, and economic liberty.

In his book, The Tyranny of Experts, Dr. William Easterly explains there are two different approaches to economic development. One is authoritarian development, a technocracy in which “well-intentioned autocrats advised by technical experts” focus on technical solutions to economic development while ignoring the “rights of real people” (p. 5). The second approach he calls “free development,” which gives free individuals with political and economic rights “the right to choose amongst a myriad of spontaneous problem-solvers, rewarding those that solve our problems”

An examination of Texas from these two perspectives yields the conclusion that Texas is double-minded. On the one hand, Texas ranks 47^th in state spending per capita, does not have a personal income tax, and has relative strong property rights protections. On the other hand, Texas’ spending jumps to 36^th when local government spending is accounted for. It also has numerous taxpayer-funded giveaways to attract businesses, including the Texas Enterprise Fund and local property tax abatements such as Chapter 313 for school districts and Chapter 312 for local governments. Texas’ economic development policy appears to be unstable, “like a wave of the sea that is driven and tossed by the wind.

A prime example of Texas’ partial embrace of authoritarian economic development policies is Texas’ elected officials support of high property tax rates for most Texans while offering tax abatements to politically connected businesses. This approach allows Texas’ schools and local governments to keep spending at relatively high levels while using the tax abatements to keep the state “business friendly” enough to keep the economy growing–and business off the backs of the politicians. Figure 1 shows how Texas property taxes have skyrocketed since 1996, the year before the Texas Legislature began a long string of failed attempts to relieve Texas’ property tax burden. Figure 2, which compares Texas property tax rates to other states, confirms the heavy property tax burden imposed on Texans because of Texas’ approach to economic development.

The reason that Texans have high property taxes is very simple: Texas’ statewide elected politicians and members of the Texas Legislature politicians prefer high property taxes to low property taxes. Because if they actually got serious about reducing property taxes, they’d have to restrain spending by local governments. And they have decided it is better, since they have bought off big business with tax abatements, to deal with complaints by Texas voters over high property taxes than it would be to deal with complaints from city councils, county commissioners’ courts, and school boards upset about not being able to build more bike paths, homeless shelters, and football stadiums. After all, why should Austin politicians worry about voters when big business and local governments are going all out to keep their benefactors in office? Texas’ voters only hope of getting politicians to do anything meaningful to reduce or eliminate property taxes is make them start worrying about us.