This is about the Property Tax Independence Act, a grassroot initiated bill that has broad bipartisan support and will forever eliminate the school property tax. HB 76 has 92 sponsors in the PA state House, SB 76 has 23 sponsors in the state Senate. Nearly a majority in both chambers. The only thing stopping it from coming to a vote on the floor is party leadership that keeps it bottled up in committee.
PEERING THROUGH THE SMOKESCREEN
Let’s take the complaint that some legislative leaders express, that the HB/SB 76 supporters will not compromise so they are their own worse enemy and will sink this bill with their own stubbornness. Let’s examine this. At the heart of this bill, that’s bottled up in committee, is the insistence that the school property tax should be abolished permanently for all time. There is no compromise with the terms “permanent abolishment”, it’s simply inherent in the phrase – anything else is temporary. So the complaint is just a re-statement of fact to the nature of the bill. This is known as a tautology, a form of circular reasoning that simply restates a fact as a reason. It is a fallacious smoke screen. The discussion does not progress if we throw tautologies at each other, we need to ask why is this the position of the bill & its backers. In other words, why should we eliminate forever this regressive tax? That answer falls into two main categories, previous experience and the nature of the tax.
WHAT EXPERIENCE TEACHES US
Experience has shown us that tax “relief” and exclusions have been miserable failures. Relief that comes from slot machine revenues has been shown to be pitifully inadequate. The amount of revenue taken in has leveled off, there are only so many people with only so much money to throw away into one-armed bandits. The taxes do not level off and the millage accumulates. And remember that this was the rational for bringing casinos into PA. Now we have “Gambling Hotlines” to deal with the families that gambling destroys.
Relief has also taken the form of exclusions. Businesses are lured in by offering tax free zones, KOZ’s & LERTA’s, where in return for bringing in business a corporation avoids being taxed for a set period of time. The problem there is too often the business was already PA based and this just succeeds at the expense of another county’s loss. And once the time period passes there is nothing to ensure that the business permanently stays. But the most egregious factor in any exclusion is the fact that the loss of income needs to be made up by the properties that are not excluded. What’s good for the business moving in is bad news to the existing businesses and homeowners. These opportunity zones are a wonderful opportunity for the companies that are politically connected. This is one of those things that’ll make the most trusting soul wonder why the same political leaders that have a say in distributing campaign funds are so against HB/SB 76. A statewide tax free zone is not subject to favoritism or the suspicion it generates.
Exclusions will always have the disadvantage of burdening the other property owners. Freeing the seniors from it sounds wonderful but then home ownership is further out of the reach of the young. Exclude all homeowners and then the businesses will be crippled in a state that already ranks near the bottom in being business friendly.
EXCLUSIONS, TAXATION, & SHELL GAMES
Let’s begin with what is already law. Below I have reproduced an amendment found in the PA constitution.
ARTICLE VIII, SECTION 2(b)(vi). AMENDMENT OF NOVEMBER 4, 1997
Exemptions and special provisions
(b) The General Assembly may, by law:
(vi). Authorize local taxing authorities to exclude from taxation an amount based on the assessed value of homestead property. The exclusions authorized by this clause shall not exceed one-half of the median assessed value of all homestead property within a local taxing jurisdiction. A local taxing authority may not increase the millage rate of its tax on real property to pay for these exclusions. [Source: 1997 Pa. Laws 633]
So here we learn that our school board can provide relief up to 50% of the assessed value on homestead property. Does anyone receive this? Of course not! You’re school board cannot raise the millage to replace what revenue it will lose. Currently homestead relief is supplied by the slot revenue the state distributes and that is nowhere near a 50% break. In the recent past a constitutional amendment has been proposed to take this exclusion up to 100%. It has been tried on three occasions in the past and has been voted in only one chamber, a far cry from passage in the entire General Assembly twice plus a voter referendum that is required for such an amendment. Currently it is proposed again, HB125. If no one is getting 50% what sense is there to raising the cap up to 100%? It looks good when you back and support something that looks like property tax elimination (up to 100%) but who will know or understand that it really isn’t? Only someone who has read down this far.
Now someone thinks they have come up with a way to pay for these higher exclusion rates. Where does the money come from, has Harrisburg discovered or invented another revenue source like slots revenue? No, not at the state level. Are they going to increase an existing tax to pay for this? No, not at the state level. See it’s important that none of this looks like Harrisburg is raising your taxes. Harrisburg sets the pension rates and rules. Harrisburg creates all the rules and regulations that your local school board must enact. Harrisburg agrees to all the changes in education that the federal government seems to create with each change of administration in Washington DC. That costs money too. But remember, your legislator is there to “hold the line on taxes”. Remember that.
The proposed legislation that claims to comes up with a way to reduce the property tax, maybe up to 100%, is HB 1189 – a bill introduced by Rep. Seth Grove. It’s main concern is to protect Harrisburg, but you won’t read that in the text of the bill. HB 1189 would allow school districts to swap property taxes for an earned income tax, a business privilege tax, a mercantile tax or a combination of two or three. This would all be at the local level, remember who’s holding the line on taxes. Should a local school district avail itself of this option I suppose a school district’s business manager will now have the levers of the local economy within his or her grasp, or maybe even worse the board itself. And there’s no cost control or promise that the property tax will not rise in the future. Reading Eagle columnist Mary Young described it this way, “Grove’s proposal would provide three blank checks to each district instead of the one they have now.” Thank you Mary, I will always think of “three blank checks” whenever I hear of HB 1189. And those are checks drawn locally of course, because Harrisburg is not raising your taxes. No, they wouldn’t do that…
THE NATURE OF THE PROPERTY TAX
Now let’s examine this tax, what exactly is the property tax is based on? It’s not based on the property itself, it’s based on the assumption that the property owner has money. Income tax is taxing money that is actually there, wealth & profit that is created. The sales tax is taking in revenue from money that is actually there, or the sales transaction would not take place.
How can property, in itself, can be considered a factor in raising revenue? Homes or open fields do not generate a dime, in fact they are a financial drain due to needed maintenance. A rental property doesn’t generate income until it’s rented, and that income will show up in both state & federal taxes. A business has business taxes and it’s employees that pay income taxes. A struggling business does not need a tax that taxes it’s very existence (the property it resides on) when it’s having a hard time paying & retaining employees.
The property tax is the most regressive tax. It’s not based on any generation of profit or wealth, only on the assumption that owning property equals an ability to pay. Why are we basing a tax on an assumption? The time when every property owner was the “Lord of the Manor” is long behind us.
This leads us to an obvious question. Why then has this form of taxation even worked if it’s not based on the ability to pay? The inescapable answer is shocking because most of us have never thought it through this far. It works because it’s extortion. It is simply, “Pay, or lose your house, your home, your property”. That is why we pay – the threat of losing the home or property that you struggled to pay off is a great motivation. And many long time property owners, people who have lived in their home and raised their families there for decades can look back and add up the property taxes they have paid and realize they have paid more to the state than they have to the bank. This extortion goes on forever, at least the bank leaves you alone after you pay them off.
CONCLUSION – A SAD COMMENTARY
There is good reason to permanently abolish the school property tax. Harrisburg has abused it for too long and all trust in them has eroded. Even now as we push for this bill there are those who will agree with the principle and the details of the bill, but they don’t trust Harrisburg to not abuse it. They see the problems that are created, like the pension debacle, and then the lack of political will to fix it. Especially this past year when a single party is in the majority but can’t even get it’s own agenda enacted. People have lost all faith in Harrisburg. And perversely that is the biggest obstacle I have observed while trying to convince people to get behind this. And I think that some in Harrisburg know this too and use it to their advantage. In his latest column Stan Huskey of the Times Herald quotes State Rep. Kerry Benninghoff, “It was interesting to hear Benninghoff say, basically, that he didn’t think Harrisburg could be trusted with the money because if they come up short somewhere else they might just use the school tax money in the general fund.” That is why HB/SB 76 set it up in a different fund that is distributed yearly so it is not there to raid for other purposes. If Rep Benninghoff had read the bill he would know that (and I think he read it). The very problem, how politics works in our state capitol, is the biggest obstruction in trying to change it and they apparently know how to play on that. What a sad commentary on our current political scene.