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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.”

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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