|Posted by Jim Rodkey on November 1, 2018 at 10:40 AM||comments (0)|
The Future of School Property Taxation
Annual increases based on the current $14 billion in school property taxation adjusted for an annual 3.5% annual increase
According to the Independent Fiscal office, if trends stay the same, the school property tax will increase state-wide by 3.5% annually. 3.5% isn’t an alarming number. 3.5% of $14 billion doesn’t sound threatening. It actually sounds sort of sustainable but is it really?
The above chart demonstrates how this translates into real numbers. Let’s start by understanding that it requires tax increases to generate this revenue. In the past 20 years, you didn’t see a SUT increase or a PIT increase to generate additional revenue because those taxes generate natural growth. The property tax does not. It must be raised to achieve the revenue it wants. That is the problem with the Property Tax. In order to sustain the revenue growth that is wanted from the Property Tax, the statewide property tax burden on property owners must increase.
To the opponents of eliminating the property tax because it’s a spending problem, it’s not that I disagree with that sentiment, but by fighting against elimination you are fighting for tax increases. Other opponents who use the robbing from Peter to pay Paul argument are also ignoring that the property tax requires increases to sustain its revenue demands.
Certainly, if we shifted from a Property Tax to a blended Income and Sales Tax, initially we would see a dollar for dollar shift of taxation. That’s only the immediate change. The long term is something very different. By shielding the property tax, next year it will cost you more, and the next year even more and it will keep up demanding more and more until there isn’t enough to sustain it and then it all collapses, possibly even taking the economy of the entire state down with it.
The Independent Fiscal office already stated that there is an initial cost benefit to shifting to the PIT and SUT tax, they did not, however, explain the long-term savings by eliminating the additional tax burdens that we see each and every year. By shifting today, we eliminate every future increase of the property tax burden on taxpayers across the Commonwealth.
We know that, through the PIT and SUT tax, we can generate additional revenue for our schools and we can do so naturally without the need for tax increases. We can not do that with the property tax.
It is only when we look to the future. if we follow the trends, that we begin to see the absolutely unsustainability of the path that we are on.
We are currently at $14 billion in revenue that came from tax increases. Using the 3.5% average increase established through historical trends, according to the Independent Fiscal office, we can chart where will be in the future and that future, as the chart reveals is absolutely unsustainable.
By 2039, in just 20 years, we will add another $14.34 billion dollars to the tax burden of property owners. At that point in time, the additional annual burden to tax-payers in the state will grow by more than $1 billion dollars a year so that, in just 12 years, we will add another $14 billion dollars for a total property tax burden of more than $42 billion dollars., Future annual statewide property taxes increases will exceed $1.5 billion dollars a year, the following year. In 8 more years, we will add another $14 billion to the property tax burden and future annual statewide property tax revenue increases will exceed $2 billion dollars. In just 40 years, the property tax burden will quadruple increasing more than 400% from where they are now.
If you think property taxes are a senior problem, look down the road to your own future. A 3.5% does not yield a stagnate annual increase. The increase grows incrementally each year.
If you are 50 now, by the time you are 70, the statewide School Property Tax burden will double. Will you be able to sustain that? Will your wages increase enough to provide for that? Remember that you’ll be in your retirement age? Will you even be able to retire if you want to stay in your home.
If you are 40 now, by the time you reach 70, the property tax burden will more than triple.
If you are 30 years old, by the time you are 70, your property tax burden will have quadrupled.
If you are looking at a newborn, they’ll be 40, probably hoping to raise their family by establishing roots in their communities. What chance do you think they’ll have will they have to do so here in Pennsylvania?
According to the census Bureau, 20 years ago the median household income was about $42,000 in Pennsylvania. Today, according to the Census Bureau, the median household income in Pennsylvania is $56,907. That’s a 27% increase.
It didn’t double during that time period and it’s not likely to do so in the next 20 years. Can a 27% increase in household income over the next 20 years sustain a 100% increase in the property tax burden?
This is the future the opponents of school property tax elimination have embraced! This is the results of an annual 3.5% increase in school property taxation. To reach that level of revenue for 2039 we will need to see $14 billion dollars in tax increases doubling where we are now. The statewide property tax burden will double.
What impact will this have on working families in Pennsylvania? What impact will this have on the small business community? What will this do to family farms in Pennsylvania? What will this do to seniors on limited income?
The facts should be clear. The path we are on cannot be sustained. This places homeownership in jeopardy; threatens the future of small businesses and our family farms; puts our schools and the futures of our teachers in peril and is a threat to the entire economy of the Commonwealth of Pennsylvania.
During a PSBA interview with the Independent Fiscal Office, the IFO explained that by shifting to a PIT and SUT tax to replace all school property taxes in Pennsylvania could see a 3.4% increase in revenue. In other words, based on previous trends, we would generate additional income to our schools that is .1% less than what they are getting through the school property tax.
Not factored into this equation is the employment benefit of shifting to this system of taxation. We know that Property Tax Exemptions (Keystone Opportunity Zone) for the small business community works for as long as the exemption stays in place. Unfortunately, when that exemption expires, many small businesses that take advantage of the program find themselves unable to sustain the change in their business when the KOZ expires.
The revenue necessary to provide for the KOZ comes from increasing the property tax burden on all other property owners. The same is true for other programs like LERTA (Local Economic Revitalization Tax Assistance) and Clean and Green.
By eliminating the school property tax, we also eliminate the additional burdens we levy on other property owners to provide for these programs. By providing school property tax exemption for all businesses and making those exemption permanent the entire state becomes a Keystone Opportunity Zone without shifting that burden to other taxpayers. Because there is no expiration of that exemption, those businesses will remain in our communities. This will generate more business in Pennsylvania which will translate into more permanent jobs. That will increase the revenue from the PIT. It will also provide more disposable income for families which translates into purchasing power which will generate more SUT revenue.
By shifting to PIT and SUT taxes, without the need for future increases to provide the same revenue to our schools, all of Pennsylvania benefits without the need for these dramatic increases we see in future property taxation. We can sustain future education funding without crushing our economic future.
The extended benefits of making Pennsylvania a better place for small business growth reaches beyond providing for education funding. More jobs in Pennsylvania will also increase the PIT revenue currently used in our General Budget. It will also increase the SUT revenue. Remember, only the increase in the PIT and SUT tax goes towards education funding, the exiting 3.07% of the PIT and the existing 6% of the Sales Tax would still go towards the revenue that funds the rest of the State’s budget.
This additional revenue could go towards other important social programs, reduce the state debt burden and provide for other essential needs in the commonwealth. It could be used for providing for other education needs by increasing the State portions of the Basic Education Funding Formula or steered towards reducing college costs in the State System of Higher Education. Wherever that revenue would go, instead of constantly looking for new things to tax to generate more revenue, we provide more revenue but eliminating a bad tax policy….school property taxation for education funding.
|Posted by Jim Rodkey on October 26, 2018 at 1:20 PM||comments (0)|
It doesn’t matter if we like it or not, political realities exist. There is a system in place that must be dealt with realistically when facing important issues and advancing legislation. We can be upset about some of those political realities and we can complain, but until they change, we have to understand that working within these political realities; developing strategies that consider these realities is essential if legislation is to move forward.
We all know the property tax is unfair. We know it is egregious and regressive. We know that the basis which will establish the millage rates, the costly home assessments, continually fail to do what they are supposed to do: make property taxation fair. We know that a minimum of 10,000 people a year face the risk of losing their homes because they can’t keep up with the demands of property taxation. We know that, in order to sustain the revenue demands of property taxation, increasing the tax burden on property owners becomes absolutely necessary.
When it comes to education funding, that tax burden on property owners comes to almost $14 billion dollars annually. Looking at statewide increase we can estimate that if nothing changes it will add a burden of about 3.5% annually. That means It grows by an estimated $500 million dollars a year If that trend continues we will be at approximately $20 billion within the next 10 years. At that point in time,, if we are still seeing a 3.5% increase, the additional increases would move from $500 million to $700 million in needed replacement revenue. In 15 years, it will grow by 875 million and in 20 years it will be an additional tax burden of $1 billion dollars a year. That’s all if nothing changes. Yet we know, as pension, healthcare and special education costs continue to grow exponentially, the likelihood of exceeding the 3.5% is a strong possibility.
We also know that the population growth in Pennsylvania is declining. In 2010, we lost a Congressional district because of population declines. In 2016 alone, approximately 45,600 more Americans moved out of Pennsylvania to another part of the country than moved in — the largest domestic outflow of any state other than New Jersey, California, Illinois, and New York according to USAToday (Source: link).
All of these are actual realities, but they differ from political realities.
Political realities are internal factors that operate within the system of government that can become obstacles to facing the hard facts about the substantive truth of any situation. Political realities become paradigms that are often based on perceptions, not physical realities. In we want to change paradigms we have start by exposing the flaws and weaknesses of those paradigms.
To change a political paradigm requires a paradigm shift. It requires moving from one accepted form to another. This is never going to be an easy task. Society, in general, is reluctant to radical paradigm changes. In the political realm, it’s even worse. The is what is behind eliminating the school property tax. It is a paradigm shift.
Any plan to eliminate school property taxes must deal with political realities. The first of these realities is the simple fact that this is a radical change in how we fund education. In spite of the evident negative effects of property taxation in the funding of education, clinging to the status quo is a political reality. Operating in a realm of political reality for those who want to cling to the status quo allows them to look only at the immediate, not the long term, measured against how such a radical change would impact special interest funding and re-election abilities. Those two factors, are what steers political realities.
The majority of the most powerful campaign funding special interests oppose eliminating the school property tax. They have refused to look at long term impacts on the overall economy of the state to focus only on the short-term self-serving benefits.
Case and point: With a shrinking base but a growing revenue demand, we can predict with some certainty the eventual collapse of the current system of property taxation in the funding of education. At this point in time, the educational complex (those campaign-funding self-serving lobbying interests of the educational complex) look at the property tax as a stable source for the collection of revenue. They know the ease of increasing property taxes over other forms of taxation and remain reliant on that ease by calling it stability. That’s a political reality but it is not based on substantive truth.
Their argument of stability is self-focused because it ignores the instability it causes in the overall economy of the state. In short, the stability of property taxation for the tax collectors is predicated upon the instability is causes for those who have to pay the tax. They refuse to accept the damage this tax has done to focus only on the benefits of the ease of raising property taxes and they then identify this as stability.
The challenge then becomes to expose the flaws of such a political reality and to accomplish that, the substantive debate must be framed around the unsustainability of the future of taxation. The stability argument allows those within the education complex to only see the stability for the moment. As costs increase and the burden grows; as it creates more and more instability for the people who must pay the tax; the less stable this tax will be for those who collect the tax. This creates a very uncertain future for our schools and teachers. If we cannot sustain the growth of the property tax burden, then we cannot sustain our schools and the teachers and children within those schools.
The reason for this is simple. In order to sustain the revenue demands in education through property taxation, the burden of property tax must increase. This results in endless increases in the property tax. Those increases impact the overall economy of the state, especially where wage growth in the private sector is not keeping up with increase of the property tax burden. As the property tax burden increases, the individual’s disposable income decreases. That means less overall revenue to put back into the economy of the Commonwealth. This impacts everything from support of local business to charitable giving.
In the last fifteen years, income and sales/use tax has remained unchanged and each year it generates addition revenue due to natural growth. Revenue from the Personal Income Tax grew by an average of 3.4% annually since 2004. It did so with no tax increases. The revenue from the Sales/Use tax grew by an average of 2.5% annually since 2004. It did so with no increases in the sales/Use Tax rate. The revenue generated from property taxation grew by 3.5%. That revenue growth required tax increases. (Source: Independent Fiscal office link)
If we had replaced the property tax in 2004 with a blended income and Sales/Use Tax, we could have generated additional revenue for our schools without seeing a single increase. The estimated additional revenue to our schools would have translated into approximately $5 billion dollars. In order to generate that same additional revenue to our schools through a property tax, we needed to increase the property tax burden statewide.
To my way of thinking, generating $5 billion dollars for our schools without a tax increase while avoiding adding $5 billion to the tax burden of working families is the very definition of stability.
By not adding $5 billion to the tax burden, we would have allowed for that $5 billion dollars to go back into the Pennsylvania economy through the additional disposable income granted to Pennsylvania property owners. This is just simple Common Sense but unfortunately, this kind of sense doesn’t seem to be to common in Pennsylvania anymore.
Again, this is the actual reality, but the political reality is that, the actual facts are ignored in order to appease the self-serving interests of the campaign funding lobbyists who cling to this stability argument created by refusing to accept the instability it is causing for many of those who have to pay the tax which damages the overall economy of the state.
Without the substantive debate, we aren’t going to change the status quo. If you are operating solely the realm of childish rants and the politics of personal destruction to make you points, you aren’t making any points. In fact, you are most likely hurting the cause.
As frustrated as we are with an overall lack of political will to change the status quo, the political reality is that, as citizen activists, we do not have the financial resources, time or manpower to change the political landscape in the replacement of enough incumbents opposed to elimination with candidates who support it. That doesn’t mean we shouldn’t try, it just means accepting another political reality.
OpenSecrets explains that public sector teacher’s unions have steadily amped up their political involvement: From 2004 to 2016, their donations grew from $4.3 million to more than $32 million -- an all-time high.
Two organizations account for practically all of the contributions made by teacher’s unions: The National Education Association (about $20 million in 2016) and the American Federation of Teachers (almost $12 million). Both groups -- which compete for members, but also collaborate with each other through the NEA-AFT Partnership -- are consistently among the organizations that contribute the most money to candidates and political groups. (Source: link)
That’s a political reality. $32 million dollars is going to generate substantive influence on elections. It doesn’t matter if we like this or not, until the process changes we have to deal with this political reality.
In order to change this, attacking individual teachers is not the solution. They want better pay and benefits, but then again, who doesn’t. The problem here is how we are funding this. In spite of the Teacher’s Unions opposition to school property tax elimination, the fact remains, the path we are on is unsustainable. Things need to change or the system will collapse under its own weight. The message must be made very clear as we advance this issue.
We do understand that education has to be funded. We understand that teachers are a valuable resource to our communities and the future of our children and if we want to preserve that, then we have to have a system that can sustain growth without unnecessarily increasing the tax burden on working families. The property tax unnecessarily increases that burden because it is reliant on tax increases to meet the revenue demand where it can be replaced by a blended income and sales/use tax that generates additional income without resorting to tax increases. The property tax is going to fail the future of our schools, teachers and children the way it has already failed thousands of working families and seniors in this commonwealth.
The opponents to school property tax elimination argue that plans to do so lock in inequities as though the argument they are making is that they are opposed to such inequities. The ironic nature of this debate is that the property tax has created the inequities and if we don’t lock them in at some point in time, those inequities will only grow further. The inequity in funding argument used to stop school property tax elimination is then another misdirection creating a political reality devoid of factual substance. Yes, there is inequity in school funding. The driving factor behind those inequities is the school property tax. If we do not change how we fund education, those inequities are going to become even greater inequities.
By locking in the current inequities we have a stable target to deal with inequities in education funding so that we can deal with that funding through the Basic Education Funding Formula in an accurate and predictable source. As long as the property tax remains, we can not do so because the property tax is a moving target that changes dramatically with each passing year. It becomes difficult to develop a formula that can be adapted to meet the changes that take place statewide in revenue through the property tax and it makes keeping track of the whole process far more difficult than it needs to be.
On one hand, by eliminating the property tax and generating the replacement revenue through an income and sales-use tax, we create a stable target so the problem can be more easily corrected. By maintaining the property tax, we create an unstable target that makes it far more difficult to deal with. Remember, we have 500 school districts and there is no consistency in tax increases within those school district each year. To complicate matters, those inconsistencies become even greater on a year by year basis. No one can really predict what the increases will be from school district to school district year by year. That inconsistency exists because of the reliance on school property taxation.
While we can predict an annual statewide increase of 3.5% across the board in the increase of the school property tax burden, we can not predict on a school district by school district basis, what those increases will be. Some school district get by one year without increasing tax burdens while other school districts exceed the 3.5% and the next year the same thing will happen again but it happens at different rates and with different school. Since there’s no predictability, the claim that school property taxes are stable becomes exposed for the myth that it is.
It is simply ridiculous to claim that you are concerned with school funding inequities when you are supporting the very institution of the property tax that not only created the inequities but will cause even greater inequities in the future.
The only way to truly deal with these inequities is to first centralize the funding that comes from the property tax and then direct that replacement funding back out to the schools where future growth is limited to inflationary growth statewide since inflation varies from county to county and municipality by municipality that creates predictable additional funding to the schools so that Basic education funding formula can then be adjusted using this predictability factor.
There are other factors at play here and in the future we’ll address some of those factors but we all need to understand something. Eliminating the school property tax is a monumental task because it involves changing how we fund education. No matter what plan we generate, those who cling to the status quo will look for excuses to oppose any such plan even if that means misrepresenting the facts.
We have to start with understanding that bitching and moaning isn’t enough. Nor is just wanting to see elimination happen enough. As John Kennedy said “Efforts and Courage are not enough without a purpose and direction.”
Part of the strategy in moving such an effort forward requires a willingness to accept the political realities and then working within the political system itself to change the paradigms that shape the political realities. That is going to require an education effort that reaches out to educate the public as well as reaches into the political process to change those paradigms from within.
The strategy needs to be addressing the opposition talking rhetoric with substantive debate and that is going to mean we have to engage those who oppose is and that we must do so firmly and passionately while avoiding the more blunt tactics of childish name-calling and the practice of the politics of personal destruction. If we want to turn those who are neutral or on the fence on this issue then we have to understand what issues are important to them as individuals and reach out to them demonstrating how that issue is negatively impacted by property taxation. The last thing we want to do is become so abrasive that we push the person who is one the fence of it and on to the other side.
Unfortunately, there have been some within this movement who have done that. They used personal attacks and name-calling, even of those who support our efforts to eliminate, to the point where they become resistant to work with us or even so much as have dialogue with us. These patterns are self-destructive to the overall goal.
We all get frustrated and we all get angry but we have to learn to demonstrate some form of self-restraint where we don’t allow our personal egos to get in the way of what we are trying to accomplish. We need to understand that this is going to require the effort of many individuals and we need to encourage that involvement, not fear that the actions of one individual or group might deflect from the attention we may want for ourselves. This becomes another area where ego gets in the way.
If we are to succeed we need to prove ourselves to be reliable conduits in disseminating data. We must provide substantive responses to criticisms that clearly refutes the criticism. If you make the claim that someone is misrepresenting the facts, if the debate is to be substantive you must prove why their claim is a misrepresentation. Calling them names isn’t proof. The only evidence you are providing is that you have a personal difference with that individual and all you have is childish rhetoric, not facts, in demonstrating why you believe that person is wrong. That is not conducive to creating the type of paradigm shift necessary for something so monumental as changing how we fund education.
It may please the some in the base but it also alienates others. It also alienates some of the base so in the long run, while you might be applauded by some for such childish antics, you are doing more damage than good.
The final political reality we need to understand is that sometimes, compromise becomes necessary so long as the compromise does not hurt the overall long-term goals. For me, I want to see the elimination of property taxation at every level of government. While I push for school property taxation I see that as an incremental step in the long-term goal. We need to understand that if we have to change something that still delivers elimination then me must be willing to at least consider that change. We must be willing to have that conversation, study its impact on the overall goal and then consider how to move that conversation forward.
We must accept that no one person has all the answers, but we can try to work together to attempt to achieve the same goal. The goal here is the elimination of property taxes starting with the school property tax. How we get there is important so let’s have the conversation. If we want to change the paradigms of the political realities, we are going to have to have those conversations with those who disagree with us. We are also going to have to take that conversation out to the public arena.
|Posted by Jim Rodkey on September 25, 2018 at 10:05 PM||comments (0)|
While this is nothing new, it’s nonetheless very frustrating when these lobby groups unashamedly flip their talking points when it benefits them to do so, completely contradicting statements they’ve made previously. Such is the case with the PA Chamber of Commerce and the Tax Foundation’s recent proposal to overhaul Pennsylvania’s tax structure.
When lobby groups oppose ideas that are popular with the public, they often conjure up phony “reasons” to justify their opposition rather than openly stating their real objections. We’ve seen this time and time again with The Chamber and their refusal to even consider school property tax elimination. Americans for Prosperity and The Commonwealth Foundation also joined them with disappointingly weak excuses of their own.
For example, The Chamber says things like “we can’t tax diapers!” and “we have to fix the cost drivers first”. AFP had their all-encompassing “we don’t support tax shifts”, and Matt Brouillette loved his dumbed down “left pocket-right pocket” analogy in an attempt to use bumper sticker politics to demonize elimination. For those who haven’t heard it, let me explain so you can understand what we’ve been dealing with.
Matt would say something similar to “it doesn’t matter if you take money out of your left pocket or your right pocket, you’re still paying and it’s still money coming out of the economy”. This was his attempt at bashing SB 76, which is being proposed as a revenue-neutral school property tax elimination plan that would shift the burden to the income tax and the sales tax. He was trying to imply that we would be no better off under such a plan, and everybody would be paying the same regardless. This type of talking point may resonate with some, but it’s easy to blow holes in his analogy.
His own example basically says that he doesn’t believe tax policy matters. According to Matt, if it’s the same amount of money collectively, then it’s irrelevant how the money is taken from us. Of course we do know that tax policy matters, especially when we’re talking about how many “pockets” we’re taking the money from. SB 76 expands the tax base, which is extremely important. It also matters how much money we’re taking out of each pocket.
If we take $1 out of the pocket of someone who has $10, we’ve taken 10% of his or her earnings. If we take the same $1 out of someone who has $100, we’ve only taken 1% of that person’s earnings. This is the nature of the property tax. It applies different rates to everybody, is not based on our income, and it’s also very regressive.
During my travels, I met a single mother in Monroe County who is forced to “contribute” 14% of her income toward her school property taxes. Last week I spoke to a woman in Lancaster County who, since the reassessment that took place there, is now paying a full 25% of her and her husband’s income in property taxes.
This scenario plays out everywhere across the state. The only way to solve this is to completely eliminate the school property tax and replace it with a broader-based method that applies the exact same tax rates to everybody, regardless of where you live. The property tax system cannot be fixed, and it can never be “fair”. Our opposition knows this to be true, but they avoid talking about these things in their defense of the status quo.
Putting all of this aside, if Mr. Brouillette truly believes it doesn’t matter which pocket the money comes from, then why is he fighting against it? If he really believes nobody would be better off, then he also has to be believe that we would also not be any worse off. Of course, my opinion is that Mr. Brouillette doesn’t believe his own talking point. He knows tax policy matters. For the record, I like Matt, and I find some of the data C.F. puts out to be very helpful. But they are wrong on this issue. Matt is no longer with C.F., but others in the organization also oppose school tax elimination.
We’ve always known that The Chamber really doesn’t care about taxing diapers, and we know their supposed opposition to expanding the sales tax base because “it hurts the lower income folks” is just playing politics. Their true opposition to property tax elimination would not earn them many accolades if publicly stated, so they join the PSEA and the PSBA in using emotional scare tactics. But now their new plan points out their own contradictions and makes it very clear that they are willing to make exactly the same opposing arguments if it means benefiting themselves.
As I give a few examples, I want to make it clear that the purpose is to highlight their contradictions and show that they really don’t mean what they say in regards to why they oppose school property tax elimination. I will not opine as to whether or not any of their proposals would be good or bad for Pennsylvania’s economy, and I’m not trying to invoke a class warfare argument. In order to have a productive debate, it’s necessary to talk about how different people will be affected, and it’s also necessary to talk about the relative fairness of our tax systems. That isn’t class warfare. It’s simply honest discussion, which is something in which our opposition has thus far refused to engage.
Included within the Chamber’s proposal is an array of options that include rate changes, tax eliminations, and the levy of new taxes. In other words…a myriad of tax shifts. There is no mention of any type of “cost controls” among their tax shifts plans, so I suppose that critique only applies to things they oppose, and not their own ideas. For the record, SB 76 does include spending controls, and I have long held that we will never get cost controls until we get spending controls. The reason we don’t have real pension reform or prevailing wage law elimination is because the state legislature, who mandates these things, gets to punt the responsibility for paying for them down to the school boards and the homeowners.
There is no accountability in the current system, and therefore no incentive to change it. How these lobby groups, who have been around politics for as long as they have been, cannot recognize this reality is beyond me. Perhaps spending so much time inside the Capitol courting politicians has clouded their vision. Perhaps they don’t know how politics really work after all this time, or maybe they really don’t want to see these problems resolved. I’ll let you ponder that on your own, but their “cost control” philosophy is akin to continuing to hand money to the irresponsible while asking them very nicely to curtail their bad habits, with no consequences when they refuse.
Our philosophy, on the other hand, is to stop asking a group of people who have shown no willingness to control themselves, to please control themselves, and instead just cut off the money in order to force the issue. The property tax makes all of this overspending possible and is how they escape accountability. Eliminate the scapegoat, restore accountability, and watch as these things magically begin to be addressed in a meaningful way. Until then, be prepared to continue to watch the pension problem get far worse, property taxes continue to skyrocket, and the finger-pointing to resume with nothing being done.
Getting back to the Chamber’s proposal – They call for a lowering of the Corporate Net Income Tax from 9.99% to 5.99% or 6.99% (depending on the option), and the elimination of the Gross Receipts Tax on businesses. To pay for this, the plan calls for an expansion of the sales tax base, a new local income tax, and the first ever tax on retirement income. It says that the new retirement tax revenue could be used to “buy down” the PIT (Personal Income Tax) rate to 2.5%, but says that it would be “better used as a pay-for to reduce less competitive tax rates elsewhere.”
In other words, the Chamber wants retired seniors to pay a new tax in order to lower business taxes. But don’t fret, seniors…they’re generous enough to entertain the possibility of using some of the new retirement tax to expand rent and property tax rebate programs for some seniors. But seniors won’t be the only losers in the Chamber’s tax shift. They also propose a local income tax on working families as a way to eliminate the Gross Receipts Tax.
Would these organizations please tell me again their views on redistribution of wealth, tax shifts, and the creation of new “winners and losers”? Pardon me for noticing some contradictions to what they claimed were their opposition to school tax elimination. Let’s examine a few of their talking points, and how they are seemingly no longer a concern when it comes to their own proposal(s).
The creation of winners and losers
They claim school tax elimination would just create new winners and losers. Our response is that the property tax system is responsible for creating winners and losers in the first place, for far too many reasons to list here. Everyone knows this to be true. Our proposal actually fixes this scenario by expanding the tax base from mostly just homeowners to everyone in the state who has an income, and to everyone who buys things (including tourists). In other words, everyone contributes. It also treats every taxpayer exactly the same by applying the same rate to their income, and the same sales tax rate to the same items and services. No more winners and losers paying different rates with enormous disparity an inequities.
While they love to use this talking point to criticize our school tax elimination proposal, they conveniently ignore the winners (businesses) and losers (senior citizens and working families) in their plan. Of course they will tell us that when businesses win, we all win, but I could say the same. When homeowners “win” with more disposable income, then businesses and the economy will also win. Businesses also win by making the entire state a KOZ (Keystone Opportunity zone) rather than the state picking the winners and losers. The Independent Fiscal Office report agrees.
The Stability of the tax
The Chamber, and virtually all of the public school lobby organizations, love to say that property tax revenue is “stable”, while other revenue from other sources is not. Therefore, they say, we cannot eliminate it. We always ask “stable for who?” For the tax collector? I suppose when you can constantly raise the rate, and with the threat of losing one’s home, the tax collector could view the property tax as stable. But what about the taxpayer? Is it stable for them? Absolutely not.
While the Chamber praises the property tax and touts it’s supposed stability, it has contradictory views of other taxes. In one section of their plan, they write about how governments tend to favor the Gross Receipts Tax because it produces large and stable amounts of revenue. It then goes on to say:
“…this revenue stability, however, does not outweigh the tax’s economic harm”.
Why then, does the Chamber love the property for providing the government with large and stable amounts of revenue, but then overlook the harm it does to the homeowner and the economy? Why does the same critique not apply to the property tax?
From the viewpoint of the taxpayer, the sales tax and the income tax are far more stable. Consider that the income tax in Pennsylvania has only been raised one time in the past 26 years. There was a 0.17 percentage point increase in 2004. The change previous to that was actually a lowering of the rate. That sounds pretty stable to this writer.
Even more stable is the sales tax, which has been 6% since 1968, but yet each of these taxes have continued to generate more revenue through natural growth, and they do so without the need for constant rate increases. I think we can all agree that Harrisburg has had no trouble spending more of our tax dollars in nearly every annual budget, and they do so mainly using these two funding sources. The Chamber’s report even touts the stability of the sales tax with this statement :
“Between 1999 and 2017, inflation-adjusted collections only diverged from the overall period’s average by more than 3 percent three times: once, when collections dropped in 2010, and again in 2016 and 2017, when collections comfortably exceeded the average”
While state revenues may decline temporarily during economic downturns, these periods are relatively short-lived, and the time spent in the black far outweighs the time spent in the red. In an Independent Fiscal Office report to Rep. Pashinski on August 16th of this year, there is a chart comparing the income tax growth rate to the property tax growth rate. This is a chart showing growth rate increases and decreases, so when the line goes down on the chart, it doesn’t represent a revenue loss until it goes below zero. Until then it’s still growth, and history shows the overwhelming majority of time is spent above zero. Legislators either don’t understand this, or they purposely try to spin this chart by saying it shows that the income tax is “too volatile” to be used to fund public education, but the opposite is true.
The IFO chart clearly shows that from 2004 to 20018, the property tax grew at a rate of 3.5%, while the income tax revenue (not the tax rate) grew at a rate of 3.4%, virtually the same. Again, this is with no rate increases on the income tax, but literally thousands of property tax millage rate increases during those years across our 500 school districts.
If the State can run their budget using the income and sales taxes as it’s main sources, and manage to grow spending year after year, then why can’t we fund public education this way? If taxpayers and homeowners are expected to manage their money during economic downturns, while they have fixed costs like property taxes and other bills to contend with, why don’t school superintendents and business managers, who are paid six-figure salaries, have the ability to do the same? If they cannot manage money the same way homeowners do, perhaps we should reconsider leaving them in charge of multi-million dollar budgets.
Taxes should be based on Income
One of the biggest problems with the property tax is that it is not based in any way on one’s income. Inaccurate assessments and unequal distribution of state money to our schools, combined with our homes not being a reflection of our wealth, leads to the enormous disparities in what each individual taxpayer must contribute toward the burden of funding public education. We have long condemned the property tax’s gross unfairness, inequities, and regressivity. Our State Constitution reads “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” The property tax falls far short of meeting this mandate.
While the Chamber doesn’t care that the property tax isn’t based on income, their report laments the fact that the Occupational Assessment tax is inequitable and not based on actual income by saying the following:
“All of which is to say that the best measure of income is income, not a tax assessor’s best guess of what that income would be assuming that a given taxpayer hewed to the median for his or her profession.”
If that’s how they feel about the Occupational Assessment tax, then how can they praise the property tax, which is not only not based on income, but it’s not even based on an assessor’s best guest of our income. Rather, it’s based on an assessor’s best guess of the value of our home, and I don’t think I even need to opine about the inaccuracy of assessments, which their own report also acknowledges.
The Pyramid effect of taxation
The Chamber wants businesses to be free of sales taxes on business-to-business transactions, and they want to eliminate the Gross Receipts Tax because this results in multiple levels of taxation that will, in turn, increase the price of the product on the end consumer. This is a valid argument. The report gives an example showing the steps a bottle of beer goes through in order to reach a consumer at a restaurant. It shows the farm, the brewery, the distributor, the restaurant, and finally the customer. Using their own example, it’s obvious that the property tax also results in multiple levels of taxation, but this is not mentioned as a concern.
Not only does the farm, the brewery, the distributor, and the restaurant pay property taxes, but so do the manufacturers and the companies who make the parts to build the farm machinery and tractor trailers, not to mention the companies who build restaurant equipment. This too is passed on to the end consumer.
The Chamber claims that property taxes have a minimal effect on economic decision making
The report reads:
“Property taxes tend to be justified on both economic and practical grounds: economically, as a generally efficient form of taxation which raises revenue with a minimal effect on economic decision-making…”
Property taxes result in sheriff sales, foreclosures, and forced relocation when the burden can no longer bet met by the occupant. Proof of this abounds in page after page of newspaper tax sale listings. It is often said that 10,000 or more homes are sold at sheriff sales annually in Pennsylvania, a statistic that’s rarely challenged.
Escalating property taxes most certainly affect spending habits for both homeowners and businesses alike. As the PA Liberty Alliance goes door to door across the State, we’ve heard hundreds of stories of forced relocation, and how rising property taxes are doing serious damage to the finances of many families. I assure you that stories of senior citizens being forced to choose between medication and paying their property taxes are real. I’ve met these folks.
We also talk to small business owners who are struggling to compete, and who cannot expand due to the inability to pass on their skyrocketing property taxes to their customers the way a large business can. The Chamber claims to represent small businesses, but in our discussions we often hear these owners refer to the organization as “The Chamber of Big Business”. This seems to be a growing consensus in the small business community. A look at where the majority of The Chamber’s funding comes from might give clues as to why they so strongly oppose property tax elimination, and why many small business owners feel left behind.
The Chamber calls the property tax “efficient” and “practical”
In the previous section, I only included part of the quote. Here is the rest of the statement:
“Property taxes tend to be justified on both economic and practical grounds: economically, as a generally efficient form of taxation which raises revenue with a minimal effect on economic decision-making and consistent with widely accepted principles of taxation, and practically, as a well-established source of funding that is both familiar and not easily replaced.”
There is so much wrong with just this one sentence that it makes me wonder if we’re both talking about the same property tax. How anyone could call the property tax “efficient” is beyond comprehension for this writer.
Having to establish assessed values for every property in the entire state alone should make it obvious that this is the most INEFFICIENT tax we have. We need to hire appraisers, county assessors, and tax collectors to administer the tax. School districts must chase down delinquent taxes, and then go through the process of seizing the property when the homeowner doesn’t pay. Then we need to burden the county sheriff’s office with the duty of evicting the occupants, and then of course we need to go through the tax sale process.
Countywide reassessments cost taxpayers multiple millions of dollars each time, and always result in years of appeals that must be heard and dealt with. Maintaining the property tax system costs taxpayers enormous amounts of money. On the other hand, the sales tax is usually collected at the point of sale, and most people have their income taxes automatically deducted from their paychecks. I’m not suggesting there is no expense for businesses and taxpayers to comply with income and sales taxes policies, but modern technology has made it much easier and more efficient.
I don’t know what the Chamber considers to be “accepted principles of taxation”, and the report doesn’t elaborate, but it’s hard to imagine any standard in which complete inequity, inefficiency, unfairness, regressivity, and skyrocketing rates would be considered good principles. How can any tax that isn’t based on income, which the Chamber itself says is the best measure of taxation, be considered a tax with good principles?
The line about the property tax being “well established” and “familiar” sounds very reminiscent of the old “this is the way we’ve always done it, so it must be right” type of thinking. Are things that are “well established” and “familiar” always good? Of course not, but what the Chamber means by this is that businesses have adopted to the property tax and can pass on the cost, unlike a homeowner who cannot. Businesses have also mastered the appeals process and can have their assessments lowered if they become less profitable. Homeowners, on the other hand, cannot have their assessments lowered when their income goes down. They either have to pay up, sell their house, or don’t pay and the government takes their home, and usually most or all of their equity as well. This is devastating, unjust, and unthinkable in America where we are supposed to value property rights.
The Chamber’s Love/Hate relationship with the Income Tax
While The Chamber wants to shift the Gross Receipts tax to working families by instituting a new local income tax in its stead, the report also speaks of how the income tax “discourages investment and labor”. They claim that local income taxes encourage out-migration, particularly if it is not necessary to move far. They cite this as a reason that property taxes are better, suggesting the property tax doesn’t force anyone to move, or that it doesn’t play a role when deciding where to purchase a home or establish a business. I know plenty of people who moved due to large property taxes, but I don’t know a single person who told me they moved because of a local income tax. I also know some entrepreneurs who would have preferred to establish themselves in certain locations but the property taxes were prohibitive.
The report then says “…local income taxes are sustainable at modest rates, but create competitive disadvantages at higher rates, particularly those seen in Philadelphia and Pittsburgh” The local income tax in the overwhelming majority of the state is 1%, while the report says Philadelphia’s rate is 3.9%. So we can conclude that the Chamber considers a 3.9% local income tax to be a problem, but the 1% tax is sustainable. Let’s compare this to the property tax, which the Chamber props up and doesn’t believe to be a problem.
Most people pay far more than 1% of their income toward their school property tax, and as mentioned earlier, I’ve met one woman who pays 14% and another who pays 25%. Unless you have a money tree in your back yard, the property tax is still paid with our income, but it’s not actually based on our income. So if the Chamber sees a 3.9% local income tax as being a problem (as do I), then how can they possibly not see the property tax as being a much bigger problem? Does it no longer matter if we’re talking about homeowners rather than businesses?
Senate Bill 76 proposes a 1.88% income tax and an expanded sales tax, which the Chamber also calls for, in order to eliminate the school property tax. This would result in an overall tax cut for the majority of homeowners, backed up by multiple Independent Fiscal Office reports.
The question remains as to why the Chamber considers it good policy to institute a local income tax to pay for the elimination of business taxes, but it’s not O.K. to use an income tax to eliminate the school property tax? At the same time, how do they call a 3.9% local income tax a problem, but not a local property tax that levies a different rate on everyone, as high as 25% or more on some? These are rhetorical questions, as I believe the answer is apparent. They are a special interest group, and the well-being of the homeowner is not of their concern.
The Chamber opposes SUT expansion for property tax elimination, but call for it in their plan
After the property tax elimination effort got some traction in 2015, the opposition groups suddenly began to take the issue more seriously. The grassroots groups they previously laughed off were now making their voices heard. Since it’s very difficult to defend a tax that’s as despised by so many people as the property tax, they needed to come up with some new talking points.
This is when the refrain became “we can’t tax diapers!” Being led by The Chamber, lobby groups and politicians alike were singing off the same sheet of music. This was the new talking point that was designed to invoke emotion, while bypassing logic. Of course, we see this all the time in politics, and in this case, The Chamber now appointed itself as the champion of single mothers and their children. Imagine how heartless the property tax elimination crowd must be to propose a diaper tax!
Thankfully, the public didn’t buy it. At a town hall in Monroe County, a single mother who was struggling with her property taxes easily recognized that she would be far better off paying a relatively small sales tax on diapers than she would be paying property taxes, especially considering the property tax burden would be there for the rest of her life, or at least as long as she “owned” a home. We constantly hear about the supposed “regressivity” of the sales tax, but by definition the flat rate sales tax is not regressive. The property tax, on the other hand, actually is regressive when viewed as a percentage of income. In this case, the single mother didn’t even earn enough money to be a financial “loser” under the SB 76 proposal. She could have spent every dime she earned on the newly taxed items and still wouldn’t even come close to paying the same in sales taxes that she currently pays in property tax, even factoring in the PIT portion.
After all of their opposition to expanding the sales tax, I find it quite the contradiction to now propose exactly that. I can only assume that The Chamber doesn’t believe it’s own rhetoric as long as business taxes are reduced and eliminated rather than the school property tax. While they don’t suggest a sales tax on diapers, they do propose options that include taxing gasoline and motor fuels, even while acknowledging that we already pay the highest fuel taxes in the country. Imagine the impact of that tax alone on working families and commuters.
But they don’t stop there. Among many other items, they list clothing, shoes, prescription and nonprescription drugs, college and vocational school tuition, health and social assistance, veterinary services and food. SB 76 still exempts clothing under $50 per item, prescription drugs, heating oil, all food items that a W.I.C. check could purchase, medical procedures and other things. Missing from the Chamber’s list are services that only wealthy people would use, like airplane services. It seems to me that the Chamber’s proposal would be more harmful to the middle and lower class than would be the expansion under SB 76. But hey, at least they don’t tax diapers…
The Chamber claims school tax elimination would harm young, low income families and renters
The President of the PA Chamber has repeatedly said that SB 76 would be bad for his young son and his family, who he says shouldn’t be paying a higher income tax to eliminate school taxes for seniors. I’ve often wondered, but never asked, if his son owns a home, or ever plans to. While these same critics talk about the new “winners and losers” after SB 76 is passed, they never acknowledge that the current system is where the “winners and losers” are created, nor do they recognize the fact that their own defense of the status quo is nothing more than them trying to pick the winners and losers themselves.
The reality is, this legislation would help new families, the lower income, and the middle class homeowners. Most of these folks are paying far more than 1.88% of their income toward their property taxes, and even the additional sales taxes will not make them financial “losers”. This is backed up by an Independent Fiscal Office report issued to Rep. Frank Ryan on November 6, 2017.
According to the IFO, the median school property tax paid on a Homestead (which does not include commercial, vacation, or rental properties) is $1,972. The average is higher at $2,291. The report says that the median PIT impact of SB 76 would be $1,008, and the sales tax impact on the median income range would be $200-$400.
The report goes on to say that even the PIT impact is over-stated, as it’s calculated on the median household income of $53,599, which includes retirement and social security income that would not be subject to the income tax under SB 76. This figure also excludes Pennsylvania’s PIT Forgiveness programs for the low income, which completely excludes from taxation income up to $51,000/year for a family with four children, $41,500 for three children, $32,000 for two children, and lower incentives for one and no children.
With this data, the math is easy. Under SB 76, the worst case scenario for a PA family earning the median (not average) household income would be a new income tax impact of $1,008 and a sales tax impact of $400 for a total of $1,408. Since the median school property tax on a home is $1,972, this means that in a worst case scenario, which won’t even happen due to the overstated situation mentioned above, the savings for a family earning the median income and paying the median school property tax would be $564. The real world savings would likely be significantly higher.
Despite their best efforts to convince us otherwise, the special interest opposition is wrong. The wealthy are the most likely to end up paying more under SB 76, not the middle and low income homeowners. They wealthy are, after all, the people who may have a high enough salary, and who may spend enough money on the newly taxed items to result in a higher tax burden. I know quite a few wealthy people who contribute much less than 1.88% if their income toward school taxes. I don’t believe any of my middle or low income friends who own homes can say the same. Most are above 3%, many far higher, and as mentioned earlier, I now know someone who pays a 25% effective rate.
Renters also pay property taxes indirectly through their rent payments, as landlords must pass this cost on to their tenants at some point. We have U.S. Census bureau data that shows rents increasing at nearly the same rates as property taxes. This is not a coincidence. During our interactions with legislators, we often hear landlords being demonized as greedy and heartless, and we’re told that landlords would never lower their rents if SB 76 were passed. I find this to be yet another attempt at politics of emotion, and not logic. SB 76 would at a minimum stabilize rent costs. Some landlords would lower their rents on their own, and others would be forced to as the market adjusts and more people purchase their first home. Does the Chamber no longer believe in free market principles?
If these legislators are truly concerned about the impact to renters, the best thing to do for those folks would be to make homeownership easier for them to achieve. This bill certainly does that by removing a large part of the property tax burden. Part of the regressivity of the property tax is that millage rates tend to be the highest in our 3rd Class cities, where incomes are often lowest. In fact, in a study done by Joel Sears, a fellow Pennsylvania Property Rights Association consultant, he shows that a $30,000 home in Upper Darby has a monthly property tax payment over TWICE that of a normal mortgage payment in this price range. No wonder so many people are trapped into a lifetime of renting and being denied the pride of owning a home of their own, and becoming a lasting part of their community.
The problem with all of their arguments are that they are only based on a snapshot in time. It’s likely that immediately following the passage of SB 76, a family who rents may not benefit. It’s also true that seniors will likely benefit the most. But we don’t live in a snapshot in time. Young families and renters will buy homes of their own, go through the decades of their working lives, and hopefully make it to retirement in their senior years, meaning today’s renters will also benefit. The alternative is to do nothing and watch property taxes and rents continue to skyrocket, further damaging our economy and sending working families and businesses out of the state.
We always hear the talking point “if we want more of something, subsidize it, and if we want less of something, tax it”. Why then, does the Chamber support the current system that taxes homeownership every year, in an ever-increasing fashion, while we subsidize non-homeownership with rent rebate programs? The only logical answer is, once again, the Chamber doesn’t view homeownership as a benefit, or perhaps not even as a necessity, especially considering they seemingly have no issue with the government seizing homes as a result of this tax.
The Chamber’s plan for the property tax problem
While The Chamber praises the property tax, they do acknowledge it’s flaws in multiple pages of their report. They even cite a study by The Council on State Taxation which compares the uniformity and efficiency of property taxes in the 50 states. It gave Pennsylvania a grade of a D, and ranked us dead last.
So what is The Chamber’s solution? More frequent countywide reassessments. That’s their big “solution”. They also call for consolidated property tax bills, so we can pay one bill to the county, who can, in turn, distribute the money to the schools and local municipalities, rather than paying separate bills. There’s not even a new reduction scheme in their plan, which would only end up being a tax increase anyway so I’m really not complaining. Their answer is actually a tax increase, and as mentioned earlier, these reassessments are very expensive and time consuming.
Thanks to Joel Sears, we have data which shows that even countywide reassessments don’t fix all of the problems inherent in the property tax. He did a real life evaluation in Lancaster County which compared actual sales prices of homes that sold in the same timeframe as their recent reassessment, and compared them to the assessed values both before and after. He found that the same level of inequities exist even after these reassessments, and in some cases, they got even worse. That’s what taxpayers get for their multiple millions of dollars spent in an effort to make the current system more uniform.
Proof abounds that the property tax system is broken. It cannot be fixed. It cannot be made to be fair. Any reduction scheme will just be a tax increase as the property tax continues to skyrocket. Elimination is the only answer.
This absolutely can be achieved, and we can fund public education in a way that treats all taxpayers the same, eliminating the current winners and losers scheme. The Independent Fiscal Office confirms that homeowners would have more disposable income, home values would increase by an average of 10%, and the state would be more attractive to businesses. But apparently these benefits aren’t good enough for the Chamber, Americans for Prosperity, the PSEA (teachers’ union), or the PSBA (school board association).
These folks all view themselves as “winners” under the current system, and they don’t want to lose their stranglehold on the homeowner. They’re happy with us continuing to be the “losers”, and they spend millions lobbying in Harrisburg to keep it that way.
In addition to all of the contradictions listed in these pages, The Chamber also condemns the Corporate Net Income Tax because it doesn’t allow for cyclical profitability cycles, and they speak of how some businesses are hurt during periods of low profitability. At the same time, they praise the “stability” of the property tax for the tax collector, while ignoring that the tax always increases even if the home owners’ paycheck decreases, or goes away completely. Yet another double standard on their part.
Homeowners cannot pass their property taxes on to someone else, as businesses can. The buck stops with us. At the same time, our homes do not generate income, as commercial properties do. The current system is completely upside down and backwards, especially considering our homes have absolutely nothing to do with education. We haven’t always funded education this way, as the school property tax was only instituted in the mid 1960’s. Even our State Constitution lays the responsibility at the feet of the legislature, where it belongs, and not with homeowners.
No tax should ever have the power to leave one homeless, and our fundamental right to acquire and own property needs to be restored. If all of the other problems with the property tax aren’t reason enough to abolish it, these few reasons certainly are.
They’re called “special interests” for a reason.
President - PA Liberty Alliance
Consultant – Pennsylvania Property Rights Association
|Posted by Jim Rodkey on September 13, 2018 at 9:30 PM||comments (0)|
The battle over property tax elimination rages on in Pennsylvania. The unfortunate but predictable side is that there is much misinformation that continues to be spread about HB/SB 76, the “Property Tax Independence Act”, despite the fact that the bill has been around for years. Some of the misinformation is born from lack of understanding the bill, the rumor mill, and half truths. However, there is also a dark side to this battle, a well planned and orchestrated intentional negative propaganda campaign with regard to the bill.
With November elections nearing the propaganda campaigns have taken on an even more heinous overtone because former Senator and gubernatorial candidate Scott Wagner supports and is campaigning on elimination. Big money behind protecting the school funding status quo is flowing freely. It is well known that the most powerful lobbyist group in Harrisburg is the PSEA. I have been told by my local legislators that generally what they want, they get. They are the ring leaders protecting the status quo. Sadly, if organizations like the PSEA understood the post enactment short term and long term impacts, we are confident they would back the bill.
With that being stated, we shall focus on the many positives of implementing HB/SB 76, the “Property Tax Independence Act”, but from a perspective many rarely hear or consider. For those who are aware of the bill, most understand it is a guaranteed dollar for dollar tax shift from property owners to Sales and Use Tax (SUT) and Personal Income Tax (PIT) that would be used to fund our schools. SUT would increase from 6% to 7% with a slightly expanded tax base. Please note that Pennsylvania has one of the narrowest SUT bases in the nation. PIT would increase from 3.07% to 4.95%. Despite what you may have been told, the vast majority will be financially better off if HB/SB 76 is enacted. That is a big statement to make so let’s explore this. We like to refer to the plethora of positive impacts of a post HB/SB 76 implementation as the “Domino Effect”. Original, NO, accurate, YES! This is rarely discussed and not well understood, but is perhaps the greatest gift of the bill due to its wide ranging impacts.
Currently property owners contribute about $14B to their local school districts to fund schools. Under HB/SB76 this money would stay in the pocket of property owners who would then spend roughly 90% of this money per the Pennsylvania Independent Fiscal Office (PA IFO). Take a few minutes to ponder the impact of injecting roughly $12.6B into the economy. This is the initiator of the many POSITIVE domino effect impacts that follow, but unfortunately the tax shift is all many understand about the bill. To only understand the tax shift demonstrates a woefully inadequate grasp of the decisively favorable economic and social impacts. The following is a list of numerous post HB/SB 76 implementation impacts.
1. The injection of this money into the Pennsylvania economy would boost the bottom line of nearly every conceivable currently existing business and / or service. As a result, many of these businesses / service providers would soon need to expand and hire. This, in turn, results in new paychecks being spent on taxable items while PIT is collected from these paychecks. Both contribute additional new revenue to fund school as defined by HB/SB 76. The bill would also help stabilize financially distressed businesses keeping folks off the unemployment line. You will hear the following bottom line common theme repetitively. This is contributor to a self-perpetuating upward financial spiral as compared to the Pennsylvania’s current self-perpetuating downward financial spiral. It is important to understand the impacts and connect the dots and that is exactly what is presented. Pennsylvania’s current school funding methodology thwarts all outcomes presented here from happening.
2. A second impact is that the ENTIRE state would become equivalent to a Keystone Opportunity Zone (KOZ). This would immediately reverse Pennsylvania’s current ranking of one of the worst business friendly states. The PA IFO reported the following in their analysis of HB1776 / SB76, ”The elimination of property taxes would significantly reduce the property tax share and would clearly increase the attractiveness of the Commonwealth for business location and expansion.” Please read the previous sentence again and let that sink in.
The positive impact here is literally immeasurable. In addition to the economic boost for existing business, it entices new business to relocate to our state and startups to choose Pennsylvania as their location. In all cases many well paying middle class jobs with benefits would be created. These new employees would inject their paychecks into the Pennsylvania economy contributing more new revenue to fund school as defined by HB/SB 76. In addition, new businesses as well as newly expanded businesses would purchase many products made and sold in Pennsylvania paying sales tax on many of those products. This is a very strong contributor to the self-perpetuating upward financial spiral.
3. It is well understood Pennsylvania is a geriatric state and this trend is increasing. One of the contributors is Pennsylvania’s out-migration trend. We rank in the top ten in the country with regard to out-migration.
What is driving this? From the 20,000 foot view it is lack of opportunity and high tax burden.
Let’s drill down a bit. First we will discuss our brain drain issue. Pennsylvania’s colleges and universities are highly respected nationwide and continue to draw both in state and out of state talent. Due to our unfriendly business environment, there is little opportunity for our graduates. Many vacate the state for business friendly states where opportunity abounds. We educate, they leave.
Second is our high tax burden, Gallup found that higher tax burdens translate into the desire to leave the state. It is well documented by the PA IFO that Pennsylvania’s property taxes are placing an undue burden on property owners. This chart (Figure 4.1) provided by the PA IFO, which can be found in their analysis of SB76, clearly shows that school district property taxes are rising far faster than inflation or average weekly wages. The trend since 2012-13 has NOT abated.
By keeping our educated student graduates in Pennsylvania, high tech industry will look very closely at our state. High tech companies, clearly the present and the future, look for an educated workforce. Literally all business has integrated some form of high tech into their process. Thus, they look for states where there is an ample supply of educated individuals. Add NO property tax to the mix and Pennsylvania will become extremely attractive to businesses, the complete opposite of the current environment.
Our high tax burden, specifically, our ever rising property taxes, are driving those of all ages out of the state. The burden is perhaps the hardest on fixed income elderly folks. It is much harder for the elderly to pick up their roots and move. Many simply do not have the funds to make such a move. Many feel trapped, distraught, and betrayed by failed Government promises and programs. It must be extremely daunting for these individuals to contemplate moving out of state perhaps leaving family and a support system behind.
Home ownership is out of reach for many younger folks and a high tax burden is driving many home owners on fixed income into tax sales or foreclosures. Folks of all ages are being forced to set their sites outside our state contributing to our out-migration trend.
As with many of Pennsylvania’s ills, enacting HB/SB76 would reverse both of these trends contributing to the self-perpetuating upward financial spiral.
4. Let’s look at community blight, a huge problem in Pennsylvania. What would eliminating property taxes do to improve this situation? This is most likely the single most powerful tool that could be implemented to battle community blight. Property owners would have more cash in their pocket to maintain properties. Landlords would be much less likely to ignore code violations and most would do a better job of keeping properties in good repair. Homeowners would do the same and much more, many would employ contractors for long desired improvements or additions that were not pursued due to property tax impact. Others would upgrade to a new home. Contractors, realtors, and all related business would see a boon in their demand all contributing to the self-perpetuating upward financial spiral.
5. Many claim the bill would hurt low income individuals and families. This is a very short term myopic view; in reality the bill would create opportunity for the lower income. First, the bill protects low income folks by not taxing WIC items. Clothing under $50.00 would not be taxed. Beyond this, with a much improved job environment, many low income or unemployed will be able to improve their financial situations by finding employment or through improved advancement opportunity. Within this group are many who are currently unable to afford a home purchase. For several, this would change which would drive the demand for realtors, contractors, Big-Box stores, and Mom and Pop stores. Once again there is that common undeniable theme, all contributing to the self-perpetuating upward financial spiral.
Associated with this claim is wealthy land barons are the individuals who would benefit. Many in this classification have taken advantage of “Clean & Green”. This program is a land conservation program that lowers the property tax rate for those enrolled in the program. Enrolling in the program cuts property taxes in half on average and sometimes far more.
6. Let’s take a look at folks who rent. Renters DO pay property taxes via their rent. It is estimated to be roughly 12% of their rent. Thus, if their rent is $1000 / month they are indirectly paying roughly $1440 annually to cover property taxes. Due to the rapidly rising nature of property taxes, landlords are being forced to pass annual hikes along to the renter. Rental occupancy is at near all time highs and homeownership at lows. By eliminating property taxes the huge pent up glut of renters who desire to purchase a home would be unleashed. Within a short period of time landlords will have trouble finding renters. This will almost assuredly lead to downward pressure on rental rates. At the very least, rental rates will stabilize for many years. Market forces always win in the end. It is conceivable that some landlords would convert their rental properties to owner occupied homes due to the demand for owner occupied homes. This captures many positives already discussed; increased demand for housing and all associated supporting business, and combats community blight. At the risk of being repetitive all contributing to the self-perpetuating upward financial spiral.
7. This is an important point that few understand. The PA IFO, though historical analysis, has found that SUT and PIT rise intrinsically on a yearly basis. This is driven by increasing wages and product cost. Average annual SUT and PIT revenue increases are more than enough to fund schools as defined by HB/SB 76. The bottom line is there would be no need to annually increase SUT and PIT to fund schools. SUT and PIT are modified in terms of decades, whereas property taxes rise every year. Clearly a HUGE positive.
8. Although we pledged nothing but positives, we will mention one example of a naysayer’s position and how what they perceive as a negative, in reality, is a positive. This can be applied across the board and is an example of pervasive myopic thinking. Many newspapers are against HB/SB 76 because papers would be taxed under the bill. This position is born out of naivety. Their narrow-minded concern is falsely based on how this would impact their business. What many fail to understand is the big picture. With the passing of HB/SB 76, a vast majority of Pennsylvania’s citizens will have more spendable cash, thus, being able to afford products and services such as a paper subscription driving demand up, not down. Apply this across the board and significantly increased demand will contribute to the self-perpetuating upward financial spiral.
9. A school districts number one concern is the student, of this we have no doubt. Along this line of thinking is a well known quote, “Education Begins at Home”. For this to occur, it is imperative that the home environment be as stable as possible. High tax burdens have shaken the financial stability of many homes and the souls in those homes in many ways. The result is parents working longer hours if available, more than one job, lowering thermostats, fast food diners, marital stress, and children spending more time without parental involvement. How can parents effectively interact with their children when absent, stressed, or exhausted? A stable home environment for children is perhaps the single most important social improvement of enacting HB/SB 76. A reduced stress home benefits the student, the school, and the parents work productivity which in turn contributes to the self-perpetuating upward financial spiral.
In closing we hope you have gained a more comprehensive understanding of the many positive impacts that go well beyond the signatures that would enact the bill. Through a significantly improved business environment and a huge cash injection into the economy, the inescapable forces that would drive the self-perpetuating upward financial and social spiral have been quantified and the dots connected.
|Posted by Jim Rodkey on September 1, 2018 at 9:55 AM||comments (0)|
Median household income is established by compiling all household income and dividing that into two groups. Very few people are actually at the median household income. It presents a number where half of the population is below the median household income and half of the population is above it. For the United States, the median household income was $59,039 in 2016 according to the U.S. Census Bureau.
The median household income varies from state to state. The median household income in Pennsylvania is $56,907 according to census numbers, $2,132 lower than the national median household income. That will also vary from county to county. I’ll be using my own county to demonstrate the differences.
Lebanon County’s median household income is $56,191, $716 lower than the state average. Within the county the disparity grows even more. The median household income in the city of Lebanon, within that county, is much lower at $35,737, $20,454 less than the median household income in the county.
I’m pointing this out to demonstrate that, in study’s using state-wide or national averages, these study’s often do not honestly reflect the actual impact. Half of the population in the city of Lebanon is far below the national median household income. Any tax increase is going to hit these people much harder than a tax increase elsewhere.
When it comes to the property tax, millage rates will vary from school district to school district. Lebanon city, where the median household income is much lower pays a much higher millage rate. The millage rate is levied on every $1,000 of property worth. With lower median household incomes, homes in the city are usually lower-cost homes. Because they are lower priced homes, their total property tax may be less than the neighboring households, but they are paying more per thousand dollars of property worth on their homes.
The millage rate in the city is 27.9135. That’s 6.9054 mills higher than anywhere else in the county. For every $1,000 of assessed property worth, Lebanon city residents $6.9064 more than anywhere else in the county. A little less than $7 dollars might not seem like much but it’s not just $7 dollars because there are no homes in the city limits selling for just $1,000.
Can you imagine paying varying rates of Personal Income tax based, not on your income, but simply because of where you live? Can you imagine an outside body hired by the government to determine what your wages should be for the job you do and then taxing your income by this bodies assessment even if that assessment does not match your actual income?
What about paying a sales tax where an outside body of government determines the value of the item being purchased regardless of actual cost and then having varying sales taxes applied based on your zip code, not on the actual value?
While that would most likely anger everyone, that is exactly how the property tax works.
The Census Bureau tells us that the average home price in the city is $89,300. The property taxes on a home valued at that average would be $2,492.68. The property taxes on the same priced home in the Eastern Lebanon County School District in Myerstown or Richland (the next highest millage rates in the county) would be $1,876.02 or $616.66 less than the same priced home in the city school district.
Our homes, however do not generate the income necessary to pay the property tax. That must be paid through median household income. For Lebanon City residents, where the median household income is much lower, they are paying a much higher percentage of their income to the property tax.
The median household income of Myerstown is $48,047. A property tax of $1,876.04 amounts to 4% of the median household income in Myerstown. For the Lebanon City resident at the median household income, they are paying about 6.9% of their household income towards the property tax.
Now remember that we are talking about the median household income. Half of the population is earning less than that while the other half is earning more. The disparity in percentage of income doesn’t simply exist from school district to school district, it varies within the school district itself since actual household income varies from household to household.
Looking at averages gives us a glimpse of what is happening but the reality is that lower-earning working families are paying a higher percentage of their income towards the property tax. That’s called regressive taxation and the property tax reeks of this in so many ways that, once you know the truth, you have to ask yourself why we haven’t done something about this sooner.
Now, some people are going to say that the property values in Myerstown are higher, and that’s true. The average home price in Myerstown is $146,000. The total property taxes on a home at that average value would be $3,067.17 or 6.3%of the median household income, still a lower percentage than a average priced home at the median household income in Lebanon City, even though the home value is much higher than the average home value in Lebanon City school district.
The property tax is based on the millage rate which is applied to an assessed value of a property. As reported in an August 10, 2018 article in the Inquirer, a Philadelphia based newspaper, we are told that errors are inevitable in mass appraisals involving hundreds of thousands of properties.
That report goes on to explain that these errors account for more than 160,000 properties in Philadelphia, or 35% of the properties, being over-assessed. The majority of the overassessed homes, according to this report, are lower-income homes. (http://www2.philly.com/philly/news/philadelphia-property-assessments-appeal-tax-market-value-20180810.html)
A previous article in the same paper talked about more than 210,000 overassessed properties in 4 neighboring counties. Contrasting populations and overassessed “errors” we find that nearly the same percentage of errors are taking place even when there are fewer properties to asses.
In many cases, lower-income families are not only paying a higher millage rate, their homes are overassessed and the excuse for these incorrect assessments, which are supposed to make property taxes more fair, is that such errors are likely to occur. So we know this is a flawed system; we all know that it is adversely impacting lower-income families; and with all that information, defenders of the property tax still insist that the property tax is a fair system of taxation in spite of overwhelming evidence to the contrary.
Many of them tell us the problem would go away if we reduced the property tax by shifting to more state funding or created special exemption for groups of people. How do you tell people that you are trying to make property tax more fair by telling them you want to give special vote-buying exceptions to one group by passing that revenue burden on to others. That’s what every exemption program does. No matter how beneficial it may be to some, providing one group a reduction or even exemption by making other people pay for it isn’t fairness in taxation.
Reduction and exemptions to one group are a recognition of the problem but a failure in having the political will to do what should be done; Eliminate the property tax and replace it with a system of taxation that is fair and works for everyone.
Certainly reducing the property tax burden would certainly ease the burden but that doesn’t fix the rampant inequality in taxation that we see all over this commonwealth especially with regards to lower-income working families.
The reduction argument is based on the premise that the property tax is a hated tax because it’s so high. The truth is that the property tax is a hated tax because it’s arbitrarily unfair no matter how its spun. Besides, we know that reduction schemes are only a temporary numbing that will soon disappear as property taxes continue to rise above the rates of inflation. If the reduction is accomplished by shifting to other taxes, we would now be paying higher taxes and our property taxes would be the same problem they always were.
The simple fact is that the assessed value of a properties worth will rarely ever reflect that actual fair market value of a home. The housing industry is a fluctuating market. A home’s value in the fair market is a price agreed upon by a willing buyer and a willing seller, not some arbitrarily determined value set by an assessment company hired at the taxpayer’s expense with little to no input from the actual property owner.
Because the assessment process generates errors, costly appeals follow. Because those appeals can be costly, lower-income families are not as likely to challenge their assessments. The appeal means getting appraisals, incurring other legal expenses and time off from work. The appeal also adds to the expense of county government making the burden of taxation at the county level more expensive.
It’s not only property owners that do appeals. School districts hire law firms to seek out properties to appeal. A report from the Pittsburgh Tribune on August 30, explains that a school district hires a law firm and pays them 30% of increased assessment as a result of a successful appeal of an individual’s property tax. We’re often told that these types of spot reassessments target business but this is clearly not the case, as revealed in the article.
The article explains that one school district filed 44 appeals and of those 44 appeals, 26 were on residential properties. That’s more than half of the school districts appeals being based on residential property, not business. (https://triblive.com/local/westmoreland/14029321-74/hempfield-schools-homeowners-square-off-over-property-tax-assessments)
It should also be noted that the school district paying these law firms 30% is coming out of the pockets of the taxpayers, not the school district. The only money the school district has is money they’ve taken from us. To know that our taxes are being spent to prosecute us to get more money out of us is just one more of the flaws of using our homes to fund government.
There is one more aspect that, however minor, is also something that makes the property even more unfair for lower-income families. Most school districts offer a discount of you pay your property taxes in one lump payment.
This is why the most recent report from the Independent Fiscal Office shows the majority (63.6%) of the revenue collected from the property tax comes in during the first quartile. In my school district early payment is a 10% reduction but I also know that, for those lower-earning families, paying the property taxes in one lump sum is something they simply can’t afford to do.
The property tax is an archaic tax riddled with flaws that pushes a greater burden on the half of the population earning below the median household income. It is painfully regressive in ways that are beyond repair. Every attempt to fix the problem has, in reality, only made the tax more unfair and more regressive. The only solution is to completely eliminate this feudal tax and replace it entirely with a system that is fair.
|Posted by Jim Rodkey on August 31, 2018 at 1:25 AM||comments (0)|
Recent school shooting have culminated into discussions about the need for improving school safety. A task force was formed from the 4,500 school board directors in Pennsylvania led by Nathan Mains.(https://www.pennlive.com/politics/index.ssf/2018/08/school_safety_task_force_repor.html)
I am troubled because the organization under the leadership of Nathan Mains wants to see the ability to fund school safety by removing the cap limit and raising property taxes to pay for it.
The article in Pennlive put it like this:
Mains is calling on them to include school safety as a component of state reimbursement for school construction projects and to allow school districts to increase property taxes above their state-set cap without going to voters for approval to pay for school safety improvements.
The cap limits were originally set in place and included so many exceptions that schools could easily just ignore the cap limits to raise property taxes above the set limit. The Department of Education would basically just rubber stamp these requests to exceed the limits set by the Department of Education and the Department would agree. The exemptions that allowed schools to exceed the cap limits was lowered to three areas but we still see more than a third of our school districts applying for and having granted the ability to exceed the cap limit.
Now the school districts want to use the issue of school safety to expand their ability to raise property taxes above the prescribed limits that are, in part, based on economic factors within the school district.
As I’ve always said, school funding is important, but the school property tax is an unfair system that is not based on ability to pay resulting in at least 10,000 people losing their homes each year to the school property tax. That number does not include the many who are forced into bankruptcy and foreclosure. It just the number of people who lose their homes because of taxes.
Their home will then be sold on an auction block where the only real concern is making sure the tax obligation is met so homes are sold for pennies on the dollar at auction without any consideration of just compensation to the owner.
The distrust of the people by the school districts is something that really concerns me. The continual refusal to allow the people living in the school districts to be part of the decision making process through voter referendum in tax increases is simply incredible to me.
At the same time, any attempts to put an end to the property tax is met with absolute resistance by the school districts. Two recent articles out of Philadelphia demonstrate that about 30 to 35% of homes in Philadelphia and the four neighboring counties are overassessed. The article on Philadelphia alone states that more that 160,000 properties are overassessed. The combined overassessement in Bucks, Chester, Delaware and Montgomery Counties is over 200,000 properties.
(Article sources: http://www2.philly.com/philly/news/philadelphia-property-assessments-appeal-tax-market-value-20180810.html; http://www.philly.com/philly/news/pennsylvania/pennsylvania-property-taxes-assessment-20171214.html?arc404=true)
The article on Philadelphia states that the majority of the over-assessed homes are lower-priced homes which would mean that lower-income families are being hit the hardest in these assessments. The article goes on to state that that some of the lower-priced properties are overassessed by as much as 70%.
Let that sink in. The assessment system is supposed to make property taxation more fair but that’s not really what the statistics prove in spite of all the assessment advocates out there trying to justify this system of taxation. We already know that lower-income families are paying a higher percentage of their income towards the property tax but to then see statistical proof that lower-income families are also the victims of over-assessments only makes this problem worse.
In an almost dismissive tone the article state that 1/3 of the properties are within a 10% range of accuracy as though that should be okay. It’s not because a home assessed at $100,000 that is only overassessed by 1% is paying property taxes on $1,000 of property they don’t actually own. That remains the fatal flaw of property taxation, it is an arbitrary value attached on an item for the purposes of taxation that rarely ever actually matches the actual worth of the thing being taxed. The overwhelming majority of the assessed values on property does not actually represent the real worth of that property.
If we assume that more than a third of the properties are over-assessed and another 30% are only slightly overassessed while the remaining properties, the higher-priced homes, are under-assessed, then there is absolutely nothing fair about assessments to determine property taxation.
To then find school districts wishing to have one more reason to raise property taxes above the capped inflationary limits knowing that the increased tax will be a millage rate determined by a assessment on a property that hardly ever reflects actual value of the property should be egregious to all of us.
Yes, we want to see safe schools. Let’s just find a way to pay for this that isn’t based on an antiquated and seriously flawed system of taxation. Certainly not one that, time and time again, is proven to be putting a higher burden on lower-income families.