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Taxes Will Come Due for Renters if State Ends Property Levies

A proposal to replace school property taxes with sales and income tax increases could mean a savings for homeowners, while renters would see increases in their spending.

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.

Is this a good idea for everyone? Or just property owners? Leave a comment.

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 Monday morning at a 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.”

Click here for a video with comments after Monday’s meeting

PaulRevere October 05, 2012 at 05:13 PM
Barbara: Home values are based on the schools in the area. That includes the many private and Catholic and other faith based schools historically providing the equivalent or more Education needs of much of society. If Public schools are needed to provide education to those who cannot "AFFORD" their local community school, then we should provide for that. But to require everyone to support a "free public education" to families Who can afford their own education needs is absurd. The current system puts Billions of dollars in the hands of Our Teachers to pay their high wages because They are collecting Real Estate taxes from Families who do not send their children to public schools. They love the set-up. That is like you supporting someone else's Hair-dresser while you use your own hair-dresser. Would you support 2 hair dressers just because the district required a "Public hair-dresser". It is unfair to You and All. Let's fund our public schools ONLY for the needy/poor and those who do not have another Education means. I am for that. I know that ALL Families will get substantial reductions in their Real estate taxes, because society is currently wasting money Paying Teachers for students NOT even attending the public schools. If you understand that , you should conclude how nothing is changed in your life.
PaulRevere October 05, 2012 at 05:24 PM
Kim: If the Home Value is not removed from the funding of Public schools, every homeowner will one day be faced with Real estate taxes so high , that it could be equal to 10% additional tax on many middle-income earners. The ever increasing Educator wages will sponge every home value increase from society. Our Homes should not be used as a source of Pay for anyone. Yet,that is exactly how the current Real Estate tax us used. Your home improvements cost you many dollars. The home goes up in value. Why should the public school get the additional taxes when you made the improvements. A sales or income tax system would make the public constanly watch the pay scales of Public schools vs the Cost of Alternative educations.
PaulRevere October 05, 2012 at 05:41 PM
It's time the COST of public schools vs. the cost of any non-public school "EDUCATION" be discussed. Your Real Estate tax only supports 30% of the actual per child cost of Public schools. Public schools are "NOT FREE". 70% of the cost comes from Businesses and Federal Govt. That, Ladies and Gentlemen, is the truth. Puyblic school actually costs MORE per child than ANY non-public school. Main Reason is Teacher Union wages vs. other Teacher Wages in non-public schools. So go ahead and google your public school district total annual expenditures. Then divide that by the number of students. That gives yo a Cost (like tuition) to educate per child. Now call your local non-public school and ask what their tuition is. You should be very surprised that the non-public schools Tuitions ARE lower in cost than supporting public schools. People of Faith should not have to support those who choose "No Faith" in Education of our children. It is time for those who send their children to public schools to decide whether non-faith should trump those with a Faith. If you earn over $50,000 and Choose to be of no-faith, then our current Real estate tax system Forces all Faiths to support your "affordable" education needs. That is why ALL support of public schools must go to ALL society based on Income. The current system actually "STEALS RELIGIOUS GROUPS MONEY" Trumping my Education in support of Non-Faith Rich people must end. VOTE NO MORE REAL ESTATE TAXES!. Free my Educ money.
brian shannon October 06, 2012 at 09:37 AM
This is an area where Tom Murt ( great guy, but PAC man for the teachers union) should take a STAND and not just be safe. The plan would BENEFIT all homeowners and Towns. The schools would stop using homeowners like a ATM every time they need money
VICTORIA MILLER October 08, 2012 at 08:43 PM
i am 78 years old never had kids in our schools i own my small house. my school taxes are 2,800 a year. i am on ss and pension i get around 10,000 a year.which is around i pay my bills. i spend around 25 a month to buy food.... is this the year i am forced out into the stree for the hungry school taxes. oh medicare.....i do not go to any doctors..... i do not use perscriptions. victoria

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