The Future of School Property Taxation
|Posted by Jim Rodkey on November 1, 2018 at 10:40 AM||comments ()|
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.