Eliminate 312 Tax Abatements, Lower Tax Rates Instead

February 24, 2021
TFR Staff
Chapter 312, Corporate Welfare, Property Tax

Originally implemented in 2001, property tax abatements have exploded as local governments across Texas compete with each other in an endless cycle of targeted giveaways to big business. The time to end this unfair, costly, and crony practice has come.

Defined in Chapter 312 of the Tax Code, these virtually unlimited tax incentives allow the value of property improvements in a “reinvestment zone” to be abated for 10 years by well-connected developers.

Abatements allow large corporations and those with political influence to temporarily exempt a portion of their property’s value from taxation, a privilege not granted to Texas homeowners or the vast majority of businesses. This has become an attractive option for giant corporations seeking temporarily relief from Texas’ oppressive property tax rates.

Rather than provide tax rate relief, an ever-increasing number of carve-outs are unfairly being granted to big businesses by local government officials, while the rest of taxpayers often pay higher tax bills.

Supporters of abatements argue they “create jobs” in the community offering the carve-out, but fail to consider the cost of the program or the unfair climate it creates. They also fail to demonstrate whether or not the incentives actually compel businesses to relocate or are simply giveaways for companies already moving to the area.

In vetoing a bill aimed at expanding tax value limitations (the Chapter 313 companion) in 2015, Gov. Greg Abbott referenced a comptroller’s report that indicated the cost to taxpayers was $341,363 per new job “created.”

A later audit of select agreements showed a system rife with inefficiencies and a lack of accountability. Furthermore, the loss of local tax revenue to local government entities correlates with higher tax rates on other taxpayers. When the abatements expire, and localities receive a windfall in new tax revenue, state law does not require the taxing entities to lower tax burdens on taxpayers.

The cost of this incentive to the state and local taxpayer cannot be understated. Two other corporate welfare programs, the Enterprise Fund and the now-defunct Emerging Technology Fund, spent $781 million in taxpayer money since 2003. By comparison, Chapter 312 abatements during roughly the same period totaled $5.5 billion, and the stack of applications only keeps growing.

In its 2011 Government Effectiveness and Efficiency report, the Legislative Budget Board expressed similar concerns, stating, “Benefits provided through the program represent a significant fiscal impact to the state that, in aggregate, is limitless.”

Both the Texas Republican and Democrat party platforms support eliminating costly and crony tax abatements, but establishment lawmakers in both parties have repeatedly insisted they continue—voting to continue them following sunset review.

Texas taxpayers shouldn’t be stuck with increased tax bills in order of carrying the cost of well-connected businesses. Instead, they should demand the Texas Legislature end these programs and encourage local governments to compete for business by cutting taxes and red tape rather than picking winners and losers.