Rich States, Poor States, & the Lone Star State

Every year, experts at the American Legislative Exchange Council (ALEC) publish the much-beloved Rich States, Poor States report, which examines “each state’s competitiveness and economic outlook” using an index that tracks and compares 15 different policy variables “that have a proven impact on the migration of capital—both investment and human—into and out of states.” Those 15 variables measure everything from tax rates and burdens to labor market conditions to spending discipline and more.

So how does Texas compare? Extremely well.

The Lone Star State “is currently ranked 6^th in the United States for its economic outlook.” This represents a major improvement in the state’s status over the last several years.

In fact, from 2020 to 2024, Texas’ national ranking improved from 15^th place to its present-day position. And based on ALEC’s previous indices, the most dramatic progress occurred just recently, from 2023 to 2024.

Source: ALEC’s Rich States, Poor States

An upturn in the state’s economic competitiveness of this nature raises an interesting question—why?

One likely explanation is the 88^th Texas Legislature’s passage of “a historic $18 billion property tax relief package,” which markedly increased the homestead exemption, compressed school district tax rates by more than $0.20 per $100 of value, increased the franchise tax exception from  $1 million to $2.47 million, and more. The value of that relief package to the individual was tremendous.

According to this estimate, a non-elderly homesteader with a home valued at $331,000 experienced school tax bill decrease of $1,266.30 in fiscal year (FY) 2024. About 55% of the savings ($681.42) resulted from the homestead exemption increase whereas the remaining 45% ($584.88) was on account of rate compression, which permanently reduced the maximum compressed rate by approximately 22 percent. In FY 2025—which begins next month—the exemption increase and rate compression together are expected to provide the typical homeowner with $1,312.31 in savings (assuming local governments don’t erode it through rate hikes, bond elections, and certificates of obligation!)

The historic tax cut package to emerge out of the 2023 legislative session, no doubt, added rocket fuel to Texas’ economic outlook rankings, as evidenced by one of ALEC’s key indices: “Recently Legislated Tax Changes.” This gauge in particular improved considerably, rising from 24^th place in 2023 to 6^th place in 2024.

It’s also worth noting that Texas’ other noticeable improvement in ALEC’s ranking was during 2021, which was the first fiscal year that its beefed-up property tax revenue limitation became fully operational. Thanks to 2019’s Senate Bill 2, the amount of property tax revenue that cities, counties, and certain special districts may collect without voter approval was reduced “from eight percent to 3.5 percent.” This was another major change to the state’s Tax Code that benefited taxpayers tremendously, as might be further indicated by ALEC’s rankings. In 2020, the state’s “Tax Expenditure Limits” ranking was 14^th best in the nation. The following year, in 2021, that measure improved to the 3^rd best.

Thus, based on ALEC’s rankings and other observable evidence, it is clear that the Legislature’s recent property tax relief and reform efforts have made Texas a better, stronger place. Our people today have more money in their pockets (relief) and more say in how much their local governments can confiscate (reform). And our economy, which is the eighth-largest in the world, is sturdy and vibrant.

Is there more work to be done in the near-future? Absolutely. But without a doubt, Texans are more prosperous because of state legislative action—and the data shows as much.