Voters will have final say on billions of tax cuts for Texas homeowners, businesses

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Voters will be asked to approve property tax cuts for Texas homeowners and businesses in November.

If voters agree, homeowners will see increased breaks on the taxes they pay toward school districts, with those above the age of 65 or living with disabilities seeing even bigger cuts, if Texas voters approve them in November. Business owners will get help, too, on the taxes they pay on their inventory.

Gov. Greg Abbott, a champion of tax cuts, said Friday he plans to sign the deal, one more procedural step before the fall election. Abbott urged voters to approve the increases.

“Never before has the Texas Legislature allocated more funds to provide property tax relief than they did this session,” Abbott said in a news release.

Texas lawmakers plan to put $51 billion toward cutting property tax cuts — maintaining ones enacted in previous years as well as enacting new ones — over the next two years. That’s a gargantuan figure, state budget analysts and some lawmakers worry will come back to haunt the state. Legislators tapped once-in-a-lifetime multibillion-dollar budget surpluses, the result of inflation and massive influxes of federal stimulus dollars during the COVID-19 pandemic, to pay for tax cuts in recent years.

Those federal dollars are all but spent. Though Texas’ economy is healthy, it has slowed. Uncertainty around the Trump administration’s back-and-forth tariff policies, lower levels of immigration, lower oil prices and federal spending cuts could make matters worse for the state’s economy, the Federal Reserve Bank of Dallas said in May.

The state budget, which lawmakers approve every two years, could take a hit as a result, said Shannon Halbrook, a fiscal policy expert at the left-leaning Every Texan. Tax cuts may not be on the chopping block, but other government services would be.

“I don't think we're going to have a lot of extra money lying around next time,” Halbrook said. “The conversation is not going to be, ‘how do we spend all this extra revenue?’ It's going to be, ‘How do we deal with a really tight environment? What do we cut? How do we go from here?’”

How much will the average Texan save?

Texans who own their home are slated to see a boost in the state’s homestead exemption, or the slice of a home’s value that can’t be taxed to pay for public schools. Lawmakers raised the exemption from $100,000 to $140,000.

The owner of a typical Texas home — valued at $302,000 last year, according to Zillow — would have saved about $490 on their school property taxes had the higher exemption been in place last year, a Tribune calculation shows. Those savings result from a combination of the increased homestead exemption and $2.6 billion in cuts to school tax rates in the state’s upcoming two-year budget.

Homeowners over the age of 65 or those with disabilities would see even greater savings under a proposal to raise a separate homestead exemption for those owners from $10,000 to $60,000.

Business owners, too, will see breaks. Lawmakers approved legislation to exempt up to $125,000 of businesses’ inventory from being taxed by school districts, cities, counties or any other taxing entity. Under current law, businesses don’t have to pay taxes on that property if it’s worth $2,500 or less.

The state would pick up the tab for the amount of property tax revenue school districts would have collected from businesses if not for the increased exemption. Other taxing entities like cities and counties will either have to raise tax rates to make up for the lost revenue, or simply go without it.

Voters must have the final say for those breaks to take effect because each involves changing the Texas Constitution.

Texas lawmakers signed off on smaller tax breaks than they did two years ago. For one, legislators had a smaller budget surplus to pay for tax cuts than in 2023. Tax cuts they greenlit two years ago also wound up costing more than they initially anticipated.

Local property tax squeeze

Abbott said earlier this year that voters should have the final say on every tax-rate increase proposed by any local government that collects property taxes. State lawmakers didn’t go that far this year, but they made other tweaks intended to curb property tax bills.

Legislators put tighter restrictions on local officials’ ability to raise property taxes in response to a natural disaster. That ability came under scrutiny last year after Harris County officials used it to hike property taxes in order to respond to severe weather events including Hurricane Beryl. They also put tighter limits on school districts’ ability to seek higher tax rates.

Cities, counties and other taxing entities must now include ballot language that read “THIS IS A TAX INCREASE” if they ask voters to approve a tax-rate increase or bond proposition under a bill lawmakers approved.

Left out of lawmakers’ tax-cut efforts are the state’s 9.8 million renters. Tax-cut proponents have argued renters benefit from cuts to school tax rates. Unlike homeowners and businesses, state lawmakers didn’t send direct tax relief to renters.

Disclosure: Every Texan has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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