The Difficulties of Eliminating School Property Taxes

By: Senator Mike Folmer and Senator Dave Argall

Several advocates for the elimination of school property taxes have asked us where efforts to rid taxpayers of this hated tax currently stand.  A bipartisan coalition of lawmakers succeeded in bringing the provisions of Senate Bill 76 to eliminate these onerous taxes to a vote in November after working to ensure the plan, also known as the Property Tax Independence Act, did not suffer the same fate as its counterpart, House Bill 76, last session.

While supporters were understandably disappointed by the 24 – 24 vote to insert the provisions of SB 76 into another bill, the Senate debate shows the progress we’ve made as a cohesive coalition over the last several years.

Making SB 76 work came after months of painstaking efforts.  Changes were drafted through an arduous process of meeting with opponents, carefully going through their concerns, studying two analyses from the Independent Fiscal Office issued in 2012 and 2013, respectively, and dissecting 13 pages of comments from the Pennsylvania Department of Revenue.

The recent Senate debate focused on the public policy of such a shift.  More importantly, the Senate deliberations have opened a dialogue with the governor on working together to reach this much needed and long overdue goal.

We removed all of the excuses for not supporting total elimination of school property taxes.  The numbers and the plan both work.  It’s possible to eliminate school property taxes.

Total elimination of school property taxes requires about $13 billion in replacement revenues and there are four other taxes that can be used to eliminate school property taxes:  Personal Income Tax (PIT), Earned Income Tax (EIT), Sales & Use Tax, and/or another tax.  SB 76 relies upon three of these four to eliminate school property taxes.

As amended, SB 76 proposes a combination of changes in sales and personal income taxes.  The Sales Tax would be broadened and expanded to 7% and the PIT would be increased from 3.07% to 4.95%.  SB 76 would also allow local school districts to impose an EIT or PIT upon voter approval.

Shifting from one tax to another results in different impacts on taxpayers.  To calculate how the proposed SB 76 changes would impact you, compare what you now pay in school property taxes to what you would need to spend under an expanded Sales Tax and a higher PIT.  Increasing the Sales Tax to 7% and expanding its base would mean you would need to spend $14,285.71 in newly taxable items for each $1,000 you now pay in school property taxes before you would be a net “loser”.

Many attempts have been made to reduce property taxes.  In 1965, Act 511 was passed to ease the burdens of property taxes through a myriad of other taxes, which included taxes on:  amusements, mercantile and gross receipts, taxes on businesses, Realty Transfer Tax, per capita taxes, personal property taxes, occupation and occupation privilege taxes, and local Earned Income Taxes.  These taxes proved to be equally unpopular and were changed or repealed over the years.

In 1987, then Governor Casey and the General Assembly developed and sent voters a bipartisan plan that included expanded wage taxes, optional personal property and sales taxes for counties, use of the Realty Transfer Tax by municipalities, municipal service fees, property tax millage restrictions, and payments for tax exempt properties.  That plan was overwhelmingly rejected by voters statewide four to one.

During the Rendell Administration, enactment of gaming and a subsequent expansion of gambling was promised to reduce property taxes by a minimum of 20%.  It didn’t and it hasn’t.

The Pennsylvania Institute of Certified Public Accountants has a brochure on “Guiding Principles of Good Tax Policy” and we believe SB 76 meets each of these ten principles:  equity and fairness, certainty, convenience of payment, economy of collection, simplicity, neutrality, economic growth and efficiency, transparency and visibility, minimum tax gap, and appropriate government revenues.

We remain committed to eliminating school property taxes because as one advocate said and we wholeheartedly agree, “No tax should have the power to leave you homeless.”

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