The Smoke Behind the Mirror: The Property Tax Independence Act

Posted by By at 17 February, at 13 : 57 PM Print

Everybody hates property taxes. On that we can agree. But the current proposal floating around Harrisburg is more onerous than property taxes, and would actually increase taxes.

The Property Tax Independence Act will be introduced in the Senate. This proposal seeks to eliminate property taxes by shifting a significant burden of funding onto higher personal income taxes, and higher sales taxes.

Some lawmakers are proposing to shift funding for school districts in Pennsylvania from personal and commercial real estate taxes to personal income taxes and sales taxes. To make up for the lost revenue for school districts, the state’s personal income tax would rise from its current rate of 3.07% to approximately 4.50%, and the state sales tax would rise from 6% to 7%.

If the current proposal becomes law, the range of items and services eligible for sales tax if the current proposal would expand. For example, items that would be taxed include diapers, hunting apparel, food, clothing and medicine. This proposal would have additional consequences for taxpayers such as loss of an important deduction on their federal taxes.

Under the Property Tax Independence Act, school districts would be forced into a system that lacks financial equity and robs them of local control. Funds would be distributed to school districts on a quarterly basis using an annual “cost-of-living” adjustment formula.

Do we really want to surrender local control and send money to a centralized government body that created the current-year budget deficit of $500 million? The hole is projected to grow to $3 billion by 2021.

We should be focused on paying down $74 billion in unfunded pension asset liabilities. Pension costs are the main drivers pushing increased property taxes, and would be ignored by this legislation.

For example, despite putting $13 million aside, neither Central Dauphin nor most other districts could have anticipated this and saved enough money for the pension explosion. In real terms, Central Dauphin pension contributions will increase by $36 million between 2015-2019. The magnitude of  the challenge is significant, and it is also completely ignored by the Property Tax Independence Act.

The math simply does not work under the Property Tax Independence Act. Eliminating most property taxes will shift the tax burden, increase taxes, but not address the problems that drive educational costs.

This tax shell game increases the burden on taxpayers:

• Taxpayers in many school districts will continue to pay a portion of school property taxes to pay off outstanding debt.

• Taxpayers will continue to pay county and municipal property and local taxes.

• Taxpayers will be paying increased personal income and sales taxes. There will be a lengthy

list of newly taxable goods and services, and just about everything that isn’t nailed down would

taxed.

• The proposal shifts the local tax burden away from large businesses to individual taxpayers.

• The tax shift destabilizes funding for public education.

•  Unlike personal income or sales taxes, the property tax base is less prone to fluctuate in response to short-term changes in the business cycle or economic recessions.

• Taxes collected locally would pack up and move to Harrisburg. The new taxes proposed in this legislation would go to one pot of funding that would be distributed by the state.

• This effectively eliminates the local school board’s ability to pay for mandated expenses, infrastructure upgrades, safety and security enhancements and the overall needs of its students and residents.

• The proposal does not address the true cost drivers of public education spending – pensions, charter tuition payments, special education costs, and health care. Human resource costs are increasing. Central Dauphin is anticipating steep increases in health care benefits, which are likely to exceed $18 million.

Many school districts, including Central Dauphin, with growing populations, would be handcuffed to address class-size, make badly needed infrastructure repairs, and fulfill government mandates.

Groups opposing this legislation include the Pennsylvania School Board Association, the PA Association of Elementary and Secondary School Principals, the PA Association of Intermediate Units, the PA Association of School Administrators, the PA Association of School Business Officials, the PA Education Association and the PA Association of Rural and Small Schools.

Opposition to the bait and switch plan has come from all corners of  Pennsylvania. On January 17, 2017,  a broad based coalition wrote the House of Representatives regarding potential tax legislation.

“What we do not support, and what the agenda for state policy makers should not include, is legislation  to simply shift any responsibility for supporting public schools from local property owners to other taxpayers.  While well- intentioned, these proposals call for raising taxes on small businesses, working Pennsylvanians  and families, only to send billions of additional dollars to Harrisburg and destabilize public education funding.”

The signees included: American Institute of Architects Pennsylvania, Insurance Federation of Pennsylvania National Federation of Independent Business, Pennsylvania Bar Association,  Pennsylvania Credit Union Association, Pennsylvania Food Merchants Association, Pennsylvania Institute of Certified Public Accountants, Pennsylvania News Media Association, Pennsylvania School Boards Association, Insurance Agents and Brokers of Pennsylvania, Manufacturer & Business Association Pennsylvania, Bankers Association, Pennsylvania Chamber of Business and Industry, Pennsylvania Defense Institute, Pennsylvania Independent Automobile Dealers Association, Pennsylvania Manufacturers’ Association, and the Pennsylvania Retailers Association.

We need to work together to find an equitable solution. Please take the time to examine this legislation, and determine if you feel it’s fair and balanced.

Eric Epstein is a school director at the Central Dauphin School District.

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This post was written by:
- who has written 371 posts for Rock The Capital
Eric J. Epstein is RocktheCapital‘s coordinator and a community advocate for good government for over 25 years. Mr. Epstein is also Chairman of the Three Mile Island Alert, Inc., a safe-energy organization founded in 1977; President of EFMR Monitoring Group, Inc., a non-profit economic development corporation established in 1977, and Chairman of the Stray Winds Area Neighbors (SWAN), a smart growth association organized in 2005. Mr. Epstein was a Visiting Assistant Professor of Humanities at PSU-Harrisburg (1992-1999) and co-authored the Dictionary of the Holocaust, which was released by Greenwood Press (1997) - Email Eric Epstein

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