Late Texas state senator, Don Huffines, and Bill Peacock, Vice President of Research at Texas Public Policy proposed a new plan to eliminate the M&O tax within eight years.

Throughout Texas’ 2023 legislative session, the primary focus for many elected officials and interest groups has been property taxes, and how the record-breaking surplus could be utilized to help alleviate this issue. 

Huffines Liberty Foundation, a group that has been studying the property tax issue closely, just released its third research paper on the issue, "Eliminating Texas’ School M&O Property Tax in 8 years." The solution proposed by the Huffines Liberty Foundation is a buydown of the M&O rates, being made feasible through strict fiscal responsibility from state legislatures and school districts.

The research paper includes four action steps for Texas Legislature to act upon. 

Don Huffines and Bill Peacock wrote, “[t]o eliminate the M&O tax in eight years, the Texas Legislature must 1) limit annual state spending growth to 2.9%, 2) allocate 90% of surplus funds created by the spending limit to property tax relief, 3) freeze and then reduce school property revenue each year until school M&O property taxes are eliminated, and 4) require local governments to get the permission of voters to raise property tax rates above the “No New Revenue” tax rate.”

Since the duo has a primary focus to eliminate M&O tax there are a few solutions at hand. 

Huffine’s and Peacock’s research paper aims to solve one question, how to eliminate the M&O levy, which was $35.8 billion, 43% of the property tax levy in 2022. The two options examined in the paper are a property tax swap and property tax buydowns.

To accomplish a property tax swap, another taxing vehicle would need to increase to make up the difference. In the past, the Texas Legislature has tried versions of this. In 2006, the state raised the franchise tax on businesses. In 2012, Texas Public Policy Institute proposed the immediate elimination of property taxes to be replaced with sales tax, mimicking states like Florida.

However, this is not the first instance where tax reconsideration has occurred. A buydown of the M&O levy was proposed in 2018 by Texas Public Policy Institute.

The initial proposal acted as a more viable and less disruptive solution compared to other propositions that would have eliminated property taxes in one fell swoop. The proposal, in the simplest of terms, is for the Texas Legislature to utilize the $33 billion surplus and tax revenue that already exists to buy down the M&O tax levy over a period of time. Said period would be dependent on the level of restraint the state can practice regarding spending growth.

While the partnership supported a tax swap solution, they also considered the flip side and how it could affect tax-payers.

Huffines and Peacock believe that the passing of new laws could be the method to accomplish this, however, the government could backtrack on its promises and nullify any progress that might be made this year or in the future. Instead, an amendment to the Texas Constitution should be the goal thereby ensuring property tax relief is permanent, and allowing all Texans to have a say in a special election.

Huffine’s and Peacock’s conclusion is that a tax swap may not be the best path forward for a multitude of reasons. Swapping property tax does not lower the tax burden for Texans, it only shifts the burden from some taxpayers to others. The second reason listed is that a tax swap does not provide any reason for the Texas government to limit spending and exhibit fiscal responsibility, which the Huffine’s Liberty Foundation believes is crucial to reducing property taxes. Finally, even though some studies show moving to a sales tax would promote economic growth, the long-term solution for economic prosperity and sustainability is reducing the size and scope of the government.