Governors and lawmakers across the country have introduced bills this year to reduce property tax burdens or limit their growth moving forward. Legislative prioritization of property tax relief is not surprising in light Gallup’s 2023 survey that found 78% saying now is a bad time to buy a house, an all-time high.
The previous all-time high in the 45 years that Gallup has been asking that question was set the prior year, with 69% saying it was a bad time to buy a house in 2022. Prior to that year, the share of people who said it was a bad time to buy a house exceeded 40% only four times and it never surpassed 50%.
Legislators in some states, however, have recently discovered that while property tax relief can be popular, that’s not necessarily the case when property tax relief is paired with offsetting tax hikes. That dynamic helps explain the recent defeat of a property tax relief package in Wyoming, along with the resistance encountered by similar property tax relief proposals in other states.
Wyoming Lawmakers Reject Property Tax Relief Paired With A 50% Sales Tax Hike
On Tuesday, February 26, the Wyoming House of Representatives voted to kill House Bill 203, a property tax relief bill championed by Representative Steve Harshman (R-Casper). Under HB 203, single-family homes would have the first $1 million in value exempt from property tax. Though Representative Harshman’s proposal, had it been enacted, would’ve zeroed out property tax burdens for 97% of Wyoming homeowners, his bill also would’ve imposed a 50% increase in the states sales tax rate.
HB 203, if enacted, would’ve raised Wyoming’s sales tax rate by two percentage points, taking it from 4% to 6%. Counties can already ask voters to levy up to an additional two percentage points in sales tax on top of the state sale tax rate. HB 203 would also allow cities and towns to also impose a sales tax of up to one percentage point. The adverse effect that such an increase in sales tax rates would have on both businesses and households was the major driver of the opposition to HB 203.
“Any sales tax increase is a regressive tax,” Ashley Harpstrieth, executive director of the Wyoming Taxpayers Association, told the Cowboy State Daily. “It’s a tax on both diapers and million-dollar purchases.”
Wyoming lawmakers aren’t the first to find that coupling property tax relief with large sales tax increases and other tax hikes makes enactment of property tax cuts more difficult to achieve. Take Texas, another no-income-tax state, where members of the state Senate introduced a property tax relief bill five year ago that, like the recently defeated Wyoming bill, was funded with a sales tax increase.
In 2019, Texas legislators proposed increasing the state sales tax from 6.25% to 7.25%. That sales tax hike was designed to collect revenue for the state to then transfer to local governments so that property tax bills could be reduced without any reduction in local government spending. That proposal aimed to reduce property tax rates in Texas by 20 cents per $100 valuation.
Property tax relief has been a high priority for lawmakers in Texas, which has the nation’s sixth highest average property tax burden. Yet the offsetting sale tax hike made that 2019 property tax relief proposal too toxic to pass. Criticism of the property tax cut-sales tax hike swap proposed in Texas sounded much like the opposition to the more recently defeated Wyoming proposal.
Property Tax Relief Runs Into Resistance In Nebraska For Same Reason As Wyoming
While Wyoming lawmakers have conceded property tax relief does not pair well with offsetting tax increases, Nebraska lawmakers are in the process of learning that same lesson. Governor Jim Pillen (R-Neb.) kicked off 2024 with a proposal to rein in rising property tax burdens in a state that has the nation’s fifteenth highest average property tax burden.
Governor Pillen’s property tax proposal, however, has run into resistance for the same reasons the aforementioned tax swaps were defeated in Wyoming and Texas. Pillen’s proposal would pair property tax relief with a 20% increase in the state sales tax rate, raising it from 5.5% to 6.5%, while applying it to previously exempt services. The package also pays for property tax relief with a $2.00 per pack increase in the excise tax on cigarettes, which amounts to a 400% increase in the excise tax rate. That excise tax increase would also hit vape products.
Those tax increases are a key reason why Pillen’s property tax proposal has drawn the ire of conservative lawmakers and organizations. In addition to raising the state sales tax rate by 20%, the proposal would apply the sales tax to legal and accounting services. Another business input hit with a tax hike under the property tax package proposed in Nebraska is advertising. The proposal would also apply the hiked state sales tax to soft drinks and candy.
“This is picking winners and losers of which products get taxed, and it will come at the expense of increasing a family’s grocery bill,” Brian Gilliand, the general manager of Chesterman Company, a distributor of Coca-Cola products, said in oral testimony during a February hearing on the proposal.
It’s worth noting that while Governor Pillen’s property tax proposal has run into opposition, he has had success enacting reforms that provide relief to taxpayers. In 2023, for example, Governor Pillen and Nebraska lawmakers cut the state’s personal and corporate income tax rates. Yet — as has been demonstrated in Nebraska, Wyoming, Texas, and elsewhere — property tax relief can often be a more difficult undertaking than income tax reform.
Governors and lawmakers, however, are proving they can learn from the successes and failures of their counterparts in other states. The reduction of the rollback rate in Texas, for example, which made it so localities could let revenue collections grow up 3.5% annually without asking voter permission, is a model that lawmakers in other states have expressed interest in adopting. Prior to the lowering of the rollback rate that Texas lawmakers enacted in 2019 after abandoning the aforementioned tax swap, local governments could see tax collections grow by as much as 8.0% annually without asking permission from voters to keep the surplus revenue.
Lawmakers in others states now look to the lower rollback rate in Texas as a potential model for reining in rising property tax burdens moving forward. Proponents of reduced rollback rate, however, acknowledge that it isn’t perfect and can be improved upon.
“The Texas Legislature passed key reforms in 2019 regarding the rollback rate for property taxes,” said Vance Ginn, a senior fellow at Americans for Tax Reform who previously served as chief economist at the White House Office of Management and the Texas Public Policy Foundation. “This included reducing the rollback rate from 8% to 2.5% for school districts and 3.5% for most other local governments and forcing an automatic election to exceed it. However, the reform excluded new property, property in natural disaster areas, and some jurisdictions that made it less effective. Even with this reform, property taxes were hiked 13.7% by special purpose districts, 11.5% by counties, and 9.5% by cities last year, which reduced the property tax relief from the state in 2023. The lesson learned is that the rollback rate should be 0% for all property and all jurisdictions. The other issue that should be addressed is excessive local government spending, which drives higher property taxes and all other taxes. Combining a local spending limit and a 0% rollback rate would help rein in the excessive burden of local governments.”
When it comes to the states where lawmakers are seeking to lower property tax bills, Ginn contends that, rather than combining property tax relief with offsetting tax hikes, lawmakers could instead facilitate property tax relief through spending restraint. Ginn is not calling for a slashing of state and local budgets, but more modest rates of growth in government spending.
In Nebraska, for example, total spending by the state would’ve been $4.2 billion less in 2023 had lawmakers grown the state budget in line with population growth and inflation for the previous decade. Such spending restraint would’ve saved Nebraska taxpayers more than $14 billion over the course of the decade. Historical spending data for other states shows how more modest rates of growth in state and local spending could facilitate property tax relief without the need to include offsetting tax hikes.
“As the historical spending data documents, lawmakers can instead facilitate true property tax relief with more modest rates of spending growth,” adds Ginn. “Property tax shifts, aside from being politically unpopular, produce self inflicted economic wounds that are entirely avoidable.”
As lawmakers in a number of red states try different approaches to limiting the growth of property tax bills, lawmakers in some blue states are moving in the opposite direction. New Jersey lawmakers, for example, are now considering a proposal to lift the state’s 2% property tax cap. Vermont legislators, meanwhile, repealed their 5% property tax cap in February.
In Connecticut, lawmakers have introduced a statewide property tax on real estate valued at more than $1.8 million. Though that proposal passed out of the Connecticut Senate Finance Committee in February, few expect it to be enacted, seeing as Governor Ned Lamont (D) opposed a similar bill in 2023.
Over the past three years, income tax relief has been enacted in half of the states. Lawmakers have also cut corporate tax rates and, as demonstrated by the recent activity in Wyoming and Nebraska, continue to pursue property tax relief. In this era of heightened state tax competition, however, the tax hikes now pending in New Jersey, Connecticut, and Vermont demonstrate that not every state is in the game.