Here's Why Property Taxes Are Higher In Texas

Aug 17, 2017

The special session of the Texas Legislature began with an announcement by Gov. Greg Abbott in June, pushing — among other priorities — property tax reform. But that call to action fell short of producing a bill in the 30-day session. And no change in property tax law might be OK, because Texans may not be as overburdened by property taxes as they believe.

“Texas property tax rates are pretty high right now,” said Jill Gonzalez, an analyst with Washington, D.C.-based research firm WalletHub. “The overall effective real estate tax rate in Texas is just under 2 percent  – 1.9 percent to be specific.”

Gonzalez said that rate puts Texas 46th worst – or 46th highest— in the nation.

According to WalletHub rankings, the Lone Star State is only five spots better than New Jersey, which has the highest property tax rates in the nation. The rankings include all 50 states and D.C.

Texas’ property tax rates are about a third higher than the national average, Gonzalez says.

“The factors that are driving those higher property tax rates in Texas is primarily the fact that Texas governments rely [more] on the property tax to fund local services than other parts of the country,” said Adam Langley, a senior analyst at the Lincoln Institute of Land Policy, a think tank based in Cambridge, Mass.

Texas law allows local governments to collect and use property taxes to fund services, like schools, roads, hospitals and emergency services.

States that rely more on property tax revenue to pay for these services generally have a higher-than-average rate.

That third higher-than-average national rate may look bad, and at face value, one could understand why the governor pushed for change during the special session.

But Gonzalez says you have to look at the total tax burden for Texans.

“Property taxes are just one piece of the equation,” said Rebekka Dudensing, an associate professor at Texas A&M AgriLife Extension. “And, of course, we don’t have a state income tax and our sales tax rates are actually relatively low, and so when you look at the overall burden, Texas is very middle of the road – bottom half, even.”

With a more typical revenue structure, property taxes would be much closer to the U.S. average, Langley said.

That means the state could lower its dependence on property taxes with the addition of a new tax – a state income tax. Texas is just one of seven states without one.

But that's an unlikely option with a conservative legislature in power, and any reform of the property tax structure will be closely linked to school funding reform. Still, Gonzalez said, there could be a silver lining for those states that carry a heavier tax burden.

“When we are looking at a place like New Jersey, like Illinois, a New Hampshire, we see these exorbitant property tax rates,” Gonzalez said. “What we also see is some of the best education rates in the country, health care systems, etc. So, that’s always the age-old question that we come back to is where are our tax dollars going and is it worth it?”