Tax Shift is Shifty

First, the good news. Legislators in the Pennsylvania House yesterday voted down a proposal that would have eliminated school property taxes. [Post-Gazette, 10-3-13] These are the taxes that you and I pay (whether we own property or not, because the cost gets passed along to renters, too) to support our schools. In fact, they are the largest source of funding for public education. They are also a source of the inequality in public school funding – so you would think getting rid of them would be a good thing, right?

Well, here’s the problem. By eliminating property taxes, the House would have shifted the funding of schools onto state income and sales taxes. This is what a separate House bill (HB 76) attempts to do – but with potentially disastrous results for schools. The Pennsylvania Budget and Policy Center found that HB76 (and its companion in the Senate, SB76) would:

  • Create a permanent funding gap, by locking in the cuts to public education over the past two years.
  • Cap education spending at a rate lower than what school districts need to keep up with rising costs.
  • Give large tax cuts to corporations who own commercial real-estate (think office buildings, shopping malls, factories, etc). A third of property taxes come from non-homeowners. [PA Budget and Policy Center, 9-25-13]

Pennsylvania’s Independent Fiscal Office agrees. In an analysis of HB/SB 76, they found that property tax elimination done this way would lead to a deficit for schools of hundreds of millions after the first year, growing to $1billion in just five years. [IFO Special Report, 10-1-13] In order to make up the difference through state personal income taxes, the PA Budget and Policy Center estimates that Pennsylvania would have to increase the tax rate from 3.07% to 6.8%: “Put another way, Pennsylvania would go from having the lowest top income tax rate in the country to having the highest personal income tax rate on working families in the country.” [PA Budget and Policy Center, 9-25-13]

The cruel irony here is that we started to relieve property tax burdens back in 2008 when the General Assembly adopted a modern school funding formula. Governor Corbett cut that formula in his first budget (along with close to $1 billion for public education), taking us backwards. Pennsylvania actually ranks in the bottom five of all states in the country in the proportion of school funding provided at the state level. This pushes responsibility for education down on local taxpayers and greatly increases disparity as wealthier districts can afford to pay more for their schools – while some poor districts actually have to raise their tax rates beyond those of wealthy districts.

The PA Budget and Policy Center concludes: “Restoring the state’s commitment to fund 50% of the cost of public schools would go a long way toward solving both problems — ensuring that students who live in modest and lower-wealth districts get the same high-quality education as their wealthier counterparts, and reducing the pressure on property taxpayers.”

So the good news is that the legislature did not do away with property taxes entirely. But the bad news is that the bill they did pass (HB1189) basically shifts local taxes without addressing the real problem. Mike Woods, Research Director for the PBPC explains, “It allows school boards to enact new business privilege taxes or raise earned income taxes and use all the new funds for property tax reduction.” However, under current law, schools districts would first have to get voters to approve any new income tax, and the law explicitly forbids business privilege taxes. [Third and State, 10-2-13]

In other words, this tax shift bill is a bit shifty. The Post-Gazette reports that, “House Republicans celebrated passage of the bill, which they said would provide local communities greater flexibility in how they pay for education.” [Post-Gazette, 10-3-13] Could someone please tell them that the problem is not flexibility at the local level. It’s that the state reneged on its commitment to adequate, equitable, and sustainable funding for public education. Our kids are missing a cumulative $2.3billion dollars for their schools.

Sadly, HB1189 received broad support from House Democrats as well as Republicans (it passed 149-46). It seems that our legislators are all eager to be doing “something” about property tax relief. But that must come with serious attention to the crisis this Governor and legislature have created in our public schools. If they are going to talk about property tax relief, then they also need to talk about relieving our schools by restoring the education cuts, fixing the state funding formula, and sensible charter funding reforms.

Unfortunately, even our allies in the House are not hearing from public education advocates on these issues. I know, I know. This stuff is in the policy weeds. It makes your eyeballs roll back in their sockets. I get it. But consider what just one or two voices can do: on Monday I met with the legislative director for Rep. Erin Molchany (who sits on the House education committee) and he told me I was the only person contacting them in opposition to HB76 (the property tax elimination bill). Meanwhile, when I tweeted about that bill last week, a person going by the name of “Mrs. D” publicly accused me of purposefully misleading people and then launched a twitter campaign urging libertarians to tweet every PA Senator and Representative to support the bill, saying “American Freedom = No taxation!”


(Apparently American freedom also means hiding behind pseudonyms, making false accusations without evidence, and ending all public goods and services paid for with tax dollars. This actually doesn’t sound like freedom to me at all.)

These are the people making the noise about tax issues right now. Our legislators need to know that we believe in public funding for public education. Yes, that’s right. We believe in taxes. Because that’s how we pay for our public goods and services. Public schools are a collective responsibility and everyone needs to pay their fair share. Do we need property tax reform? Probably. But not at the expense of our common good. Enough with the shifty politics.

4 thoughts on “Tax Shift is Shifty

  1. It’s interesting that you would use the Pennsylvania Budget and Policy Center for your justification to oppose HB/SB 76 since their BOD is totally union-controlled. Sharon Ward, the PB&PC’s director, has been on this rant every time alternate education funding is proposed and her research director, Michael Wood, stated during a House Finance Committee hearing on the bill last year that 10,000 Pennsylvania families losing their homes to property tax sheriff’s sales each year is statistically insignificant and is no reason to change the system. These are the kind of callous, unfeeling people you rely on for your conclusions? Couldn’t you find a less biased source for your information?

    • The Independent Fiscal Office came to the same conclusion after careful analysis (see the link in the post). Property tax elimination will create a $1billion funding gap for our children’s schools. It’s the Governor and legislators that I see arguing for policies that will hurt poor and working families — particularly those students hit the hardest by the state budget cuts. We need adequate, equitable, and sustainable funding for the education of 1.8 million public school children.

  2. The funny thing about one’s opinion is that it’s always based on their own agenda. Shifting the burden to taxation based on income is the only equitable solution to the problem. Thousands of senior citizens are losing their homes every year in Pennsylvania because of property taxation for school funding. I am now retired, a Vietnam era veteran, collecting Social Security and living in my home of 25 years. I’ve owned that home for that long. I’ve been paying property taxes for over 40 years now. However now my property tax bill is 45 percent of my annual income! After paying for the utilities, there is no money left for food or clothing. My choices at this point are to sell my home or take an equity loan to pay my property taxes and hope I don’t live long enough to run out of equity. How can anyone justify this form of taxation is beyond me! I’ve worked all these years, served my country, and now discover that I’m only a source of school funding and expendable. So, explain to me why school funding should not be based on income?

    • Bob, I actually agree with you that we need property tax reform. And long time readers of this blog know that we talk consistently about the enormous inequity of over-relying on local property taxes — it’s one of the causes of huge disparity in our schools. I am suggesting that our legislators need to get serious about adequately and equitably funding our schools for the benefit of students and taxpayers.

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