The property tax elimination fallacy

I would like to focus on the most important fact about the “property tax elimination” bill being proposed in Harrisburg: Senate Bill 76 and House Bill 76 do not eliminate property taxes. The legislation only attempts to eliminate school property taxes – maybe, eventually, in exchange for a 40 percent hike in the state personal income tax and a steeper, broader sales tax – meaning Pennsylvanians will now have to pay tax on most food, clothing and services such as legal fees, dry cleaning, childcare and much more.

Pennsylvanians will face a higher overall tax burden while still paying property taxes. Counties and municipalities also assess property taxes, which comprise 31 percent of all property tax collections; these taxes would remain. Moreover, school property taxes would not be eliminated entirely in most districts. School property taxes would continue to be collected until all local school debt is paid in full – leaving property taxes in effect in some school districts for the indeterminate future while those residents would also pay the higher state income tax and the higher, broader sales tax.

Currently, 98 percent of school districts carry debt, meaning only 10 out of 500 of them could immediately eliminate school property taxes under the new law. A recent analysis shows that 215 school districts in the state will retain at least 20 percent of their existing school property tax; 23 districts will keep at least 50 percent of their current school property tax; and several school districts will still need to retain all or nearly all of their current school property taxes to fund existing debt payments.

It’s also important to note that Pennsylvania taxpayers would lose all local control over their education tax dollars. All funds will now be sent to Harrisburg to be redistributed to school districts rather than the current system of keeping the funding local. Simple legislative changes to the distribution formula would suddenly have taxpayers in one district seeing their tax dollars appropriated by a district across the commonwealth. It’s not unrealistic to think that with a swipe of a pen, those school districts that spend less per student because of sound fiscal practices will become net exporters of tax dollars to support failed districts throughout the commonwealth.

Ultimately, we ought to examine “what we are paying for” before we focus on “who is paying.” The General Assembly should correct the problems that are driving the ever-escalating costs of public education. First and foremost, our pension costs are engulfing state and local school district budgets, directly causing property tax increases. Most recently, Pennsylvania’s credit rating was downgraded – again – because of the inability of lawmakers to stop the bleeding from our $53 billion unfunded public pension liability. Additionally, outdated prevailing wage requirements, school funding formulas, unfunded mandates and stagnant reassessment policies all contribute to escalating property taxes.

The property tax shift proposals should be up for debate at the end of the reform process, not the beginning. Let’s enact reforms that create the most value for our education dollars. Let’s focus on lowering tax burdens to make Pennsylvania an industrial leader. This will grow our communities by providing incentives for businesses and their workers to locate here. Only broad-based economic growth – and the higher revenues that will come with it – will fund our local schools and make Pennsylvania a better place to live, work and raise a family.  

Carl A. Marrara is the vice president of government affairs for the Pennsylvania Manufacturers’ Association