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Pa. Property Tax Swap Hikes Sales and Income Taxes

A proposed Pa. tax reform swap could save homeowners - but not working renters - thousands of dollars

By Melissa Daniels | PA Independent

HARRISBURG — Eliminating school property taxes in Pennsylvania means some will win, others will lose.

The winners are retired homeowners, who could see a 37 percent decrease in their tax liability, according to the latest analysis of the most visible proposal on the table.

The losers are working renters, who could see a nearly 11 percent increase in tax spending.

The tax reform proposal spelled out in House Bill 1776 and Senate Bill 1400 aims to swap about $13 billion in school property taxes annually with increases in sales tax, an expanded sales tax base and an increase in personal income taxes.

The latest figures, from a much-anticipated analysis by the state Legislature’s Independent Fiscal Office, show a windfall gain for homeowners but inconclusive results for the rest.

Some two-dozen lawmakers heard the analysis at a recent joint meeting of the House and Senate finance committees and the Select Committee on Property Tax Reform.

The tax swap could save homeowners — but not necessarily renters — thousands.

Matt Knittel, director of the IFO, said it could take several years to realize any rent savings, noting that leases take time to expire. Beyond that, the proposed increases in sales and personal income taxes would be greater than the potential reduction in rent.

Another effect: Residents who use property tax as a deduction on their federal income tax filings would no longer be eligible. Statewide, federal income taxes would increase by $550 million annually without school property tax deductions, Knittel said.

Rep. Jim Cox, R-Berks, bill sponsor, said renters would see benefits in other realms. Some may be able to buy a house, affording a monthly mortgage minus the property tax bill, he said, while other landlords would have extra capital to spruce up properties.

The IFO analysis showed the tax swap would create a $1.5 billion shortfall to school districts in the first year. Cox said the predicted shortfall isn’t “a death knell” for the bill, and he would suggest an increase in the personal income tax rate to close the gap.

As written, House Bill 1776 would raise the PIT from 3.01 percent to 4.07 percent, but Cox said a rate of about 4.4 percent would fill the gap. He said he plans to file that amendment and is working with House leadership so the bill is addressed.

Though only several session days remain, Cox said he’s determined to get the proposal out for a floor vote – his proposal stalled in the House Finance Committee earlier this summer after lawmakers expressed uncertainty about the revenue numbers.

Cox said lawmakers and state officials can figure out the numbers, but it comes down to one question, he said.

“Do you want to replace property taxes with a broader sales tax a little bit higher with a higher PIT of about 4.4 percent?” Cox said. “Give us the answer to our question and we’ll go away, but for now people haven’t had the opportunity see their reps or senators vote on this.”

In the likely event no action is taken this session, the issue could be pushed to the next crop of legislators come January.

The Select Committee on Property Tax Reform will draft a report on recommended legislation for property tax reform by Nov. 30.

Rep. Tom Quigley, R-Montgomery, who chairs the committee, said he envisions recommending a multitude of options for tax reform, whether that’s a statewide change or enabling local reform. He said potential changes to the school funding formula could complement any property tax reform.

But the IFO analysis gives a blueprint for those changes, Quigley said. He said he believes relying on sales tax instead of property taxes for school funding is a fair distribution, as it comes down to consumption.

Families with children in schools are out there spending the most, he said, whereas the retired homeowners who would save the most money could decide how much to spend on consumer goods.

“The senior citizens, that’s who you hear the most from,” Quigley said, “someone who owns a home being taxed out of a home because they can’t keep up with those tax payments.”

Amend October 07, 2012 at 01:11 PM
While I support the position of assisting retirees and the elderly on fixed incomes by eliminating or reducing their property tax burden, I'm not sure how funding education thru a tax on consumption and income will be capable of bringing in stable budget numbers as both of those revenue sources are susceptible to extreme changes depending on the economy. The bill also seems to neglect how to adequately fund schools in poorer districts. It also sounds like the state will then have budgetary control over local districts since the money will pass thru the state and not raised at the local level. Would that then eliminate the need for local school boards, and are we as pennsylvanias comfortable with the state having that much control over education?
Andrew Wilt October 07, 2012 at 01:52 PM
There is likely nothing wrong with the property tax status quo except for the fact that Pennsylvania does not require that reassessments ever be done. The problem with not reassessing frequently is that after a while, statistically, by virtue of how the formulas that work with the assessment data were created, the more expensive properties tend to be assessed at a lower percentage of their fair market value while the least expensive properties tend to be assessed at a higher proportionate value. About 10 years ago I spent literally hundreds of hours copying data off the county web site - http://www.ncpub.org/Main/Home.aspx . I put that data into spreadsheets to compare how expensive properties were assessed in comparison to inexpensive properties. One particular property included a large stone home on about 8 acres next to the Saucon Valley Country Club. It had sold prior to the 1995 county reassessment for $1,750,000 yet the county only placed a value of $217,000 on it. Many of the pricey properties in that area, and indeed throughout the township, have assessments that are very low in comparison to their fair market value. THAT is where some considerable revenue is being lost and those property owners have the means to pay. The existing system wasn't intended to work, and cannot work, if counties reassess only twice a century or so. If the Legislature in Harrisburg would mandate that counties reassess at least every 5 years, there could be enough revenue.
ted.dobracki October 07, 2012 at 02:01 PM
A 1% income tax increase will not be enough to eliminate the school real estate tax. Need more like double the income tax.
change October 07, 2012 at 03:12 PM
as i see these comments and all the data people have pains takenly went over i have seen nothing about the realization that there are many states (especally down south) that have no where near the problem with money as we have and do not have property tax and have risen there sales tax one percent and tax everything. also as for the data on property tax have you concidered that the propertly tax is based on single family homes that in certain areas may have 2 or 3 familiys in them so it does not take a mathmation to figure out that there are some families that are paying nothing, the sales tax will take care of that problem. i am tierd of people in pa thinking that things that work in other states will never work here wake up pa is not a special state
louis kootsares October 07, 2012 at 04:13 PM
we need to eliminate taxing property to fund schools with another means it can spread out the cost.. and those illegal immigrants can pay, along with the baby factories who are drains on society ,when they buy something. i am not alone in disliking freeloaders having their kids in schools and i have to pay.. ayatolla obahma likes illegals ,making them citizens quick and others freeloaders,they will vote for him
Chuck Ballard October 07, 2012 at 06:11 PM
You also need to be aware that these proposals also give businesses that don't pay personal income tax or sales taxes (if they are exempt) a big windfall. The part of the school costs they now pay due to property taxes then falls on individual taxpayers to make up through their income and sales taxes. That is also noted in the IFO report.
Robert Kistler October 07, 2012 at 10:58 PM
Everyone who is against this, you do not fully understand the proposal. This bill would is the single most important and needed change in PA. Explore http://www.ptcc.us/, click on FAQs, use the calculator. Educate yourself. The tax shift would unleash home owner value, jump start the real estate market restoring many construction jobs, and encourage companies to move to PA. It also brings in real NEW revenue, any out of state person who purchases a taxable item in PA would bring revenue into state funding. Clearly a state sales tax based funding system is much more stable than the current property tax system as evidenced by foreclosure rate which is only going to get worse as fixed income folks face rising tax base.
Deb Fusco October 07, 2012 at 11:35 PM
As a PA licensed Realtor I have come to know the tragedies of the elderly being "forced" to sell their homes because their taxes are too high for them to pay. These are people who have lived in their homes for 40 plus years and now when they retire can no longer afford to live in them. This proposal does seem like a good idea to me and I believe it would also cause healthy economic growth for the area as more people would feel encouraged to purchase homes in Pennsylvania.
David Molony October 07, 2012 at 11:49 PM
Everyone I have talked to, not even most everyone, but everyone, in my door to door discussions has been in favor of a 2% hike in sales taxes with taxes on clothing over $50, adjusted annually for inflation. Also tighten down on internet sales and the Delaware loophole. If there is difficulty in meeting the tax levels necessary to run schools after reducing administrative costs by consolidating smaller districts, we need to look at a way to provide a single small millage tax on non-owner occupied commercial buildings that would require a 2/3 majority of both houses to raise. That would provide more comfort to commercial owners who feel they will have their rates raised constantly. This may not be constitutional, however.
Carol Ann October 08, 2012 at 04:18 AM
Rep. Mike Turzai, Republican Majority Leader gets to stand at the head of the class but is certainly no representative leader, of The People. All the property tax abatements, rebates, refunds, and exemptions are smoke screens for temporary band aids that appease only those who will believe the manure spoken by desperate men. Eventually, the truth will be known by all. Eventually, every Pennsylvanian will learn that you and the rest of you who make excuses for not eliminating the School Property Tax, are not brave; are not to be trusted; are not worthy of our vote. Until the School Property Tax is eliminated, thousands of Pennsylvanians, every year, will be forced off their land and out of their businesses, and the blood for their demise is on your hands. www.ptcc.us
Carol Ann October 08, 2012 at 04:37 AM
Every residential and commercial property owner in Pennsylvania pays the School Property Tax. Believe it or not, part of what renters pay in their rent goes to pay the School Property Tax as well. Income tax is paid by anybody that earns income, period. Sales tax is paid by whomever buys something. In Pennsylvania, property owners pay 75-80% of the annual budget of your school district. The rest is paid by your tax dollars that are spent by our state legislature and governor, every year. Your local tax collector and county tax office collect the School Property Tax from you, if you own a property, and from your landlord, if you rent. No homeowner, renter, or business owner in Pennsylvania ever gets any breaks on paying the School Property Tax. If the School Property Tax is NOT paid, your county tax office forecloses on the property owner and makes them homeless. ............................... The IFO report does not mention this. The IFO report was designed to give those who do NOT care whether you, your landlord, family, friends, neighbors, or your boss are forced out of our once great state, the excuse to tell you, HB1776 cannot be adjusted and you should just keep paying the tax until you die. www.ptcc.us
Carol Ann October 08, 2012 at 04:45 AM
The IFO report and Rep Mike Terzai have neglected to mention that unless the School Property Tax is eliminated asap, you will be paying up to 30% more school property taxes within 3 years. Write your Pa. state legislature and ask them, What's this underfunded teacher's pension fund business all about? IF they tell you, they don't know anything about an expected, potentially, devastating rise, they are lying to you.
Carol Ann October 08, 2012 at 04:49 AM
Thank you. I hope you and your fellow Pa. licensed realtors will take a moment and join one of the 75 taxpayer advocacy groups across Pa. and/or the PTCC . Dozens of Pa. state legislaturers are co-sponsors of HB1776 but, they and the rest of our state govt need to hear your voice. I write to them via congress.org
Carol Ann October 08, 2012 at 04:51 AM
School Property Tax elimination and replacement can work anywhere. Learn more via the PTCC .
Carol Ann October 08, 2012 at 05:00 AM
In 2012, Pennsylvania property owners, paying the School Property Tax, will generate about $12.9 billion. Under HB1776, this year, in this not yet recovered; still suffering economy, the 1% state sales increase and 1.1% earned income tax increase would have generated about $16 billion. Imagine how much more will be generated by sales tax and earned income tax once the School Property Tax is eliminated and that $12.9 billion dollars is left in the pockets of property owners? Suddenly, an average of $3360.00 will be left in the annual budgets of home and business owners to buy more food, medicine, goods, services, better maintain their homes, expand their businesses, hiring more people, ... ... or should we do nothing and wait to be foreclosed on for non payment of our School Property Tax? ptcc.us
Robert Sentner October 08, 2012 at 12:11 PM
trust me I am very receptive to this idea as I pay around 12,000 dollars with the new assessment on school tax, BUT my question is what happens to the business in Delaware county West Chester etc. the ones on the border of Delware where there is NO sales tax ?? everyone within 10 miles of Delware will just buy there stuff in Delaware and the poor business's in that area will just go out of business. I know Chuck Ballard could care less about business by his comment above.
Jack Longenberg October 12, 2012 at 01:58 PM
10,000 homes in PA go to tax sale each year for failure to pay school property tax .This archaic system of taxing the owners of property to support schools has become ridiculous its time we have all citizens contribute to paying for the education of our children .and as far as reassessing look no further then Lehigh County, they would not accept the home owners PA certified apprasal showing market value less then county values, but the county could use seven year old comps to establish their values leaving the property owner with nothing near the fair market value. Under the present system oweing the bank $150,00.00 the bank will work with you to keep you in your home.Oweing the school district $100.00 they will take your home and sell it to the highest bidder throwing a retired senior , single moother ,or family out to the curb.
katie October 31, 2012 at 07:04 PM
OK I relocated here from CT. they have an all in one tax... Property tax it is all inclusive I would ask every couple of years to find out what percentage went where. So I knew how much went to to the city county state or schools.. I have been here 16 years and it use to drive me crazy that I would keep sending out all these bills.. but now I do like to see where the money is going. I have no children in the school system but I believe this world will be so different in 10 years I agree that our children need to have the best education they can get. My big issue with the state sales tax.. They should tax cigarettes more. an additional 10 15 cents may not solve the problem but it certainly mignt help some. And it can be used to help the elderly and disabled to pay their property taxes.

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