California Follows Texas' Lead On Redistricting, But Not Tax Relief

Forbes

21 hours ago

California Governor Gavin Newsom (D) is seeking voter approval for a mid-decade congressional redistricting in response to the new maps that Texas lawmakers are in the process of approving. Meanwhile, state officials in Georgia, South Carolina, and other states are seeking to follow the Lone Star State's lead on tax policy.
In South Carolina, which had the nation's fastest population growth due to domestic migration last year, leading contenders to be the state's next governor have committed to phasing out the state income tax, while sitting state legislators are in the process of reducing and flattening the state income tax. In neighboring Georgia, meanwhile, Lt. Governor Burt Jones (R) recently launched a committee tasked with formulating a plan to phase out the state income tax in the coming years.
The Georgia Tax Elimination Committee, which is a bipartisan committee comprised of members of the Georgia Senate, held its first hearing yesterday in Atlanta. Testimony presented during that hearing pointed out how neighboring states like North Carolina and South Carolina have been making progress in reducing their state income tax rates, as well as the success that no-income-tax states like Texas have had in attracting new residents and job-creating investment.
In fact, Governor Greg Abbott (R-Texas) and state legislators in Austin are advancing reforms during the current special session that underscore why lawmakers in Georgia, South Carolina, and elsewhere are keen to pursue reforms that make their tax codes more competitive. Critics or skeptics of Georgia lawmakers who aim to phase out the state income tax might not know it but, as Texas is now demonstrating, lawmakers in many states that already lack an income tax are still looking for ways to provide further tax relief to families and employers.
The congressional redistricting legislation that Texas lawmakers are advancing during the ongoing second special session is garnering most of the media's attention, but Texas lawmakers are also using this special session to advance legislation that would provide a stronger safeguard against rising property tax burdens. Senate Bill 10, which the Texas Senate passed yesterday and now heads to the House for consideration, would make the state's existing Voter-Approval Tax Rate (VATR) more conservative, lowering it from 3.5% to 2.5%. In a new report released on August 15, Texas Public Policy Foundation's James Quintero explains the history of the VATR, previously referred to as the rollback rate, and how it has worked to protect Texas taxpayers:
'In 2019, the 86th Texas Legislature modernized its state-imposed property tax revenue limitation (PTRL) so as to reduce the rollback rate, now known as the voter-approval tax rate (VATR), from 8% to 3.5% and create an automatic voter-approval requirement that permits voters to approve or reject any increase above the threshold. As a result of these changes, the state's property tax levy growth has slowed noticeably since the PTRL's implementation.'
SB 10 incorporates the first recommendation in Quintero's report, which calls on lawmakers to 'further strengthen the PTRL's effect,' by 'reducing the VATR to 2.5% or lower.' In addition to the VATR reduction included in SB 10, Quintero offers other ideas to strengthen property taxpayer safeguards in Texas, such as 'closing loopholes, striving for uniformity and simplicity, and abolishing outdated concepts, like the unused increment tax rate.'
Despite the strengthening of the VATR in 2019, high and rapidly rising property tax bills remain a top complaint that legislators field from constituents. In particular, exemption of new property, property in natural disaster areas, and other exclusions have weakened the taxpayer protection provided by the reduced VATR. While the 2019 VATR reduction has saved property taxpayers billions, Quintero explains how unsustainable rates of spending by local government have worked against state lawmakers' efforts to provide relief.
'As a consequence of the loose local environment, the average Texan has not experienced state-directed tax relief in full. Instead, only some portion of the intended relief seems to have reached its target, i.e. the taxpayer, while the monies intercepted by local governments have been used to grow government and maintain expenditure levels beyond what they might otherwise be. In a sense, state-directed tax relief has become an indirect subsidy for cities, counties, and school districts.'
'Texans still face the seventh highest property taxes in the nation, with homeowners paying 1.36% of their property's value every year,' writes Vance Ginn, a Texas-based economist who previously served in the White House Office of Management and Budget. 'Even with homestead exemptions now up to $140,000 and lower school district tax rates, the burden keeps climbing. Why? Because lawmakers refuse to get serious about limiting local government spending.'
Those who praise the relief provided by the VATR reduction of 2019 and subsequent relief measures, as well as those like Ginn who criticize Texas lawmakers for not doing more, agree on a key point. They all agree that a state-imposed limit on the growth of local government spending is the key reform that will achieve longterm property tax relief in Texas, as it gets at the root cause of relatively high property tax bills.
'City and county governments routinely outspend the growth of population and inflation (P&I),' Quintero points out. 'In fact, from 2019 to 2023, many large city and county budgets outstripped P&I increases by a significant margin, signaling that local governments are spending more than the ideal. One consequence of this heightened spending environment is the need for new and higher property taxes.'
The sort of reforms that are needed to right-size local government, Quintero's new report notes, have been filed as legislation in Texas. The new TPPF report highlights HB 325, legislation introduced during the regular session earlier this year that would 'limit annual expenditures for cities and counties, allowing increases only in line with P&I, unless voter-approved or in disaster declarations, with certain revenues excluded.'
Representative Cecil Bell (R) has introduced legislation for the current special session, HB 73, that would limit growth in local government collections from all revenue sources at the rate of population plus inflation. Under HB 73, local officials can keep revenue collected in excess of that limit if they get voter approval.
'Without strong spending limits, property tax bills will keep rising—no matter how many exemptions or temporary cuts are passed,' Ginn adds. While Ginn believes SB 10 does not go far enough, it would reduce the VATR such that it would provide greater protection against property tax hikes than is currently the case.
Aside from addressing a top constituent complaint, Texas lawmakers know property tax relief and protection against rapid growth in property tax burdens is key to ensuring Texas maintains one of the nation's most attractive tax climates. As more states move to reduce and phase out their income taxes in the coming years, the lack of an income tax becomes less of an advantage, making the need to address relatively high property tax burdens more imperative.
Like college football's South Eastern Conference, the club of no-income-tax states is poised for further growth in the coming years, with many likely new entrants coming from SEC country. As Lt. Gov. Burt Jones, the top contender to be Georgia's next governor, remarked during the August 19 meeting of the Georgia Tax Elimination Committee, if 'we want to continue to stay competitive in the state of Georgia and continue to be the number one state to do business, we've got to be looking for ways to keep us competitive and make it where we have a competitive advantage over states that we are competing with all the time.'
When questioned about the need to further reduce or even phase out Georgia's income tax, Lt. Gov. Jones and his colleagues can point to the fact that lawmakers in Texas and other no-income-tax states aren't resting on their laurels, but aiming to increase their advantage. The expansion and permanent extension of the research and development tax credit that Governor Abbott signed into law earlier this year, along with the property tax relief that he and state legislators are now pursuing, demonstrates how Texas legislators, like their counterparts in two no-income-tax states that Georgia is sandwiched between, are working to expand their advantage over not only the 42 states with an income tax, but also the other no-income-tax states.