The property tax elimination bill likely to be taken up in Harrisburg this year is a windfall for business and wealthy school districts and will end up costing middle class taxpayers more than they pay now in taxes, according to an independent analysis.
Produced by the Keystone Research Center in Harrisburg, the study – titled “Who Pays for Property Tax Elimination?” – pulls no punches.
“Far from providing relief for working families, recent proposals to eliminate school property taxes in Pennsylvania would increase taxes on the middle class while sabotaging the chance to adequately fund Pennsylvania schools for middle-and low-income families,” is the report’s very first sentence.
To make up for the revenue lost by eliminating property taxes, the proposals floated last year in the General Assembly and expected to return again this year call for increasing the personal income tax from 3.07 percent to 4.95 percent and the state sales tax from 6 percent to 7 percent, as well as expand the things to which the sales tax applies, including food.
Right off the bat, that eliminates a big tax liability for business properties, which now pay a sizeable portion of school property tax – a revenue loss that must be made up by individuals, said Mark Price, the labor economist for the Budget and Policy Center and the author of the report.
“That’s a big benefit for the shareholders of Wal-Mart, or Wal-Mart’s landlord,” said Price.
The study has been widely criticized by the Pennsylvania Taxpayers Cyber Coalition, a group that represents dozens of grassrots organizations working to eliminate school property taxes.
“As one Berks superintendent who supports HB76 said to me several weeks ago, all of these points are invalid,” said David Baldinger, PTCC coordinator. “They are simply an excuse to disguise their true concern: losing the ability to levy taxes at will and to keep their hands in the homeowners’ pockets. None of the other complaints matter or contain any truth.”
The authors of the study disagree.
Middle- and low-income families, which put a larger percentage of their income into things now subject to a higher sales tax, would end of paying more over the course of a year than they do now paying property taxes, Price found.
“Eliminating property tax is easy to discuss in a simple form because people don’t like taxes and they get a bill each year,” said Price.
So households with income between $40,000 and $63,000 would see an annual tax increase of 0.9 percent. In other words, they would pay $326 more in sales and income taxes than they would under current property tax rates, under the plans likely to be proposed.
“That’s a large increase in taxes with no new revenue for schools,” said Price during a web presentation on the report.
By contrast, households that earn between $215,000 and $535,000 a year would see a tax increase of only 0.1 percent under the current proposal.
In addition to wealthier households seeing a smaller tax increase, their public schools would benefit the most in terms of state funding if current funding models are used.
Baldinger said the Keystone Research Center has ties to labor unions, including the state’s largest teachers’ union, which opposes any change in the current property tax system.
“We have put 12 years into researching and designing a fair bill that solves the education finance problem permanently and have spent 12 years building a support network and working for that bill’s enactment,” Baldinger said. “We are continuing to work for a bill that the PA Independent Fiscal Office (IFO) has vetted twice and the Anderson Economic Group has analyzed once and both have declared it viable.”
The most recent proposals promise to replace local property tax revenue with state revenues, meaning wealthier districts that choose to raise their property taxes to benefit their schools, would now see their property taxes disappear and the higher cost of their education spread among all state taxpayers through sales and income taxes.
For example, “affluent Lower Merion School District in Montgomery County would receive 22 times as much in state funds for school property tax elimination ($23,219 per student) as the high-poverty Reading School District in Berks County ($1,034 per student),” the report notes.
In the 125 most affluent school districts, state funding would average $10,703 per student as opposed to the $3,721 the 125 poorest school districts would receive.
“That’s a poorly designed method of distributing state funds,” Price said.
That would be reversed, however, if the “fair funding formula” adopted last year – which takes into account things like poverty, special education population and local tax effort – were to be applied to the entire state education revenue stream instead of just 6 percent, as is the case this year.
In that case, the 125 highest-poverty districts would receive $12,647 per student, while the wealthiest districts only $3,107 per student.
The fair funding formula is Pennsylvania’s attempt to “reverse the persistent failure over the past 16 years for the state to make an increasing contribution to fund education,” said Price.
Pennsylvania currently ranks 46th in the nation for state contribution to education and ranks number one in the gap between rich and poor districts.
Without using the fair funding formula for all state funds, property tax elimination is “simply a tax shift and the burden still largely falls on local taxpayers and feeds the inequality,” he said.
That means without any change in the way the state distributes education funding, eliminating property taxes would see “families in the moderate income rural and urban communities that pay the biggest increases in taxes, would pay the price again, with their children’s educational opportunities permanently compromised by changes like large classroom sizes, a lack of full-day kindergarten and fewer or no arts or AP classes,” the report concludes.
The Keystone Research Center gets a portion of its funding from organized labor groups, according to information posted on its website, and many of its board members are affiliated with labor unions across Pennsylvania, including the state’s largest teachers’ union.
