Texas’ future depends on its financial foundation

Texas has a hard-earned reputation of being a low-tax state — there’s no state income tax here, and Texans voted overwhelmingly just two months ago to make it even harder to create one.

Texans pay a lot on property taxes though, a perpetual issue at the legislature— with homeowners worrying that they are being priced out of their homes and businesses concerned that their tax burden is higher than other states.

These two issues show how hard it can be for policymakers, year-in and year-out, to create the right mix of taxes, fees, and other revenue sources for a stable foundation for state finances and economic growth. Up until now, this work has generally been successful — look no further than the state’s roaring economy and low unemployment rate.

At Texas 2036, we’re focused on ensuring that future generations of Texans enjoy a broad and stable revenue base through Texas’ bicentennial and beyond. We see a need to keep a careful eye on the long-term fiscal future, and to support the hard choices state and local leaders will need to make to sustain Texas’ prosperity through the 21st Century.

In some areas, Texas is well-prepared for the future. In others, the legislature needs to take steps to ensure that the state can succeed in the future as it has in the past. Here are some key facts and trends:

  • With Texas’ economy becoming more diverse and dynamic, the state relies less on oil and gas activity than it used to, insulating it against volatility in that industry.

Texas relies less on oil and gas than it use to.

  • The tax burden has been shifting toward local government, especially school districts, and local property taxes now account for more than half of all tax revenues collected in Texas. According to Texas Comptroller Glenn Hegar’s office, the local tax burden in Texas is the 7th highest in the nation. That’s primarily due to rising property values and local governments’ reliance on property taxes.

The local tax burden in Texas is the 7th highest in the nation.

  • New and continuing tax exemptions are more valuable every year to Texans and businesses, but they make it harder for our governments to serve a growing Texas. The Texas Comptroller estimates state and local governments exempted $59.8 billion in potential tax revenues in 2019. The state portion amounted to 77% of the state’s total tax collections. Without changes, such exemptions are expected to grow to $75.9 billion a year by 2024.

Exemptions are expected to grow to $75.9 billion a year by 2024.

There’s far more data where that came from. Those who want to know more should check out A Field Guide to the Taxes of Texas, a comprehensive report from Comptroller Hegar’s office that offers a great overview of the state’s financial picture. There’s also the TexIndex, which compares the state with others in areas ranging from demographics to workforce to state and local finances, and this history of taxes and fees in Texas, which traces the evolution of Texas state revenue sources since 1972.

Three key charts from these reports include:

You can expect more data from Texas 2036, as well. That’s because we deeply believe that, for Texas to remain the hub of prosperity and opportunity that it’s been for generations, policymakers will need to be smart about how they’re balancing the state’s finances and economy. We need to be sure that the state is covering Texans’ needs and ensuring that taxes don’t become a drag on employers and investment.

As a data-driven organization, we want to provide information and perspective that fuels a productive conversation about how Texas can continue to support needed investments in infrastructure, education, and future financial obligations, not just keep its head above the rough fiscal waters.

The story of Texas is a great one. With a strong fiscal foundation, it can be even greater.