Conservative Texas Budget Supports Historic Tax Relief

Washington’s progressive policies have substantially reduced economic freedom, which in 2020 hit the lowest score since 1975, and resulted in a U.S. recession and 40-year high inflation. And in Texas, high property taxes from excessive local government spending have contributed to an affordability crisis for many families. Unfortunately, things will get worse nationally, likely dampening Texas’ economy, before improving.

The Texas Legislature has helped limit excessive governmental burdens on families by passing a Conservative Texas Budget (CTB) and tax relief in recent years, but much more is needed next session.

We’d have to go back to the 1970s, and early 1980s to see this degree of hardship from ill-advised policies from the Federal Reserve, Congress, and multiple presidents as inflation is running above 8% and the economy has contracted for two of the last three quarters—and the domestic economy contracted in the third quarter without net exports.

Washington got us here with excessive deficit spending and money-printing that led to too much money chasing too few goods and services. And things are likely to get worse because of the Russian war with Ukraine, higher interest rates, and tax hikes.

But given that the Texas Legislature can’t control President Joe Biden’s overregulation, Congress’ overspending, or the Fed’s overprinting, what can it do to help Texans?

Two things: limit government spending and provide historic property tax relief.

The first can be supported by the Foundation’s latest 2024-25 Conservative Texas Budget.

It provides recommendations for the state’s two-year total budget by capping its growth to—at most—the rate of population growth plus inflation, while funding core provisions. But given the economic situation, a better goal is to freeze the budget to best help struggling Texans.

Over the last 20 years, there have been two periods of budget growth.

From the 2004-05 to 2014-15 budgets, the average biennial growth rate of those six budgets was 12%, compared to 7.4% for population growth plus inflation. This excessive budget growth led to a large cumulative burden of higher taxes and fees.

However, since the CTB was created in 2014 and more policymakers have practiced spending restraint, the four biennia since then have had average growth rates of population growth plus inflation of 9.4% compared with the budget of 5.2%, which helped correct some of the earlier excessive burden.

Fortunately, the Legislature passed a stronger state spending limit in 2021 that caps all general revenue funds, excluding tax relief, which is about half of the total budget to the rate of population growth times inflation. This was based on much of what’s in the CTB.

The new improved limit will help ensure more stability in the economy and budget over time, but there remains a large budget burden from past excesses.

For example, the current 2022-23 budget is $245 billion, excluding $19.5 billion in total funds towards property tax relief and one-time federal COVID-19-related funds, as these shouldn’t permanently grow the size of government.

This amount exceeds the $237 billion budget if it had grown by just the rates of population growth plus inflation since the 2004-05 budget. And the cumulative budget excesses since then add up to $219 billion or nearly $14,500 in an additional burden per family of four this year.

Given this excessive budget burden, there’s more work to do.

Considering the economic situation and past budget excesses, the Foundation recommends that the Legislature pass a 2024-25 budget in the upcoming 2023 session using the CTB approach.

The CTB is usually based on the maximum rate of population growth plus inflation over fiscal years 2021 and 2022 of 16% resulting in a total budget ceiling of $284.5 billion. However, this rate is substantially higher than the 10.9% increase in average hourly earnings of all private sector workers in Texas, so many Texans can’t afford it.

Hence, appropriators will ideally come in well below even the rate of population and inflation. Doing so would substantially reduce the excess burden, and ensure that the one-time COVID-19 federal funds go away.

These budgeting options should leave plenty of general funds available to provide the second key of substantial tax relief to withstand the progressive policies out of D.C. and national economic trends.

The Texas Comptroller has already said there will likely be a $27 billion surplus and $14 billion in the rainy day fund. If the Legislature can help restrain spending, there should be plenty of tax revenue to return to Texans by cutting local property taxes so they can better weather the affordability crisis.