Texas Republicans Are Doubling Down on Banning Capital Gains Taxes

In Texas, 17 constitutional amendments will be up for a vote this November, on issues ranging from bail reform to funding for dementia prevention. But the majority of the proposed measures concern tax rights, prohibitions and exemptions. Among them is Proposition 2, which calls for “banning the capital gains tax on individuals, estates and trusts.”

If passed, the state of Texas will not be able to collect taxes on “realized and unrealized capital gains,” meaning profits generated from the sale or holding of an investment, including stocks, bonds, real estate, and personal vehicles. Although there has been no polling on the issue, state voters will likely pass Proposition 2. Since 1993, the state has proposed three tax bans, and all three have been approved by voters. Under the 2019 income tax bill, capital gains taxes were already effectively banned, and in 2023, Texas voters approved banning a “wealth tax” with nearly 68% of the vote.

In a video from May, Texas Governor Greg Abbott looked forward to signing a joint resolution that would allow voters to “guarantee that we will not have a capital gains tax on Texans in the state of Texas.” He then said it was “an extension of our collective contempt in Texas for any type of tax.”

Most states only tax realized capital gains (and none tax unrealized capital gains). Although Texas currently imposes no capital gains tax, the proposal, if adopted, “will erect a permanent barrier to a future legislature or electorate willing to adjust our tax code to changing needs,” Dr. Cathy McAuliffe, a former school board candidate for the Rockport-Fulton Independent School District, wrote in a letter to the newspaper’s editor. Rockport Pilot. “Texans deserve the flexibility to meet ever-changing challenges.”

The ban would disproportionately benefit wealthy households, many of whom have flocked to the state in recent years. By 2025, more than 10 percent of the population Forbes 400 The list of America’s richest people was made up of Texas residents, and the state has one of the most regressive tax systems in the country, according to the Institute on Taxation and Economic Policy, with the state’s low-income households paying the largest proportion of their income in taxes.

Several editorial boards across the state have expressed a negative opinion on Proposition 2, including the Houston Chronicle and the San Antonio Express-News. In October, the editorial board of Austin, American Statesman asked readers to vote no on the proposal, saying that, if passed, the constitutional amendment would remove a potential source of funding in the future. “Capital gains tax breaks primarily benefit wealthy households and worsen racial wealth inequality,” he writes. The Statesman. “Those at the top should not be permanently protected if Texas needs new sources of funding.”