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Property Tax: The Last One Standing – Part 1

As the first punches from Covid 19 landed on state and local government revenues in spring 2020, it was clear that the virus’s impact, compounded by mandated shutdowns, blew big holes in budgets. Public health and the economy both slumped quickly, draining revenue for essential services. Tax holidays gave the illusion over the early summer that the nation could bounce back soon. Well, no.

It all depended on perspective.  Think tanks such as The Tax Foundation, which pulls in the direction of broader-based sales and use taxes, looked at the rosy April to June receipts, barely considering that panic buying had a lot to do with it (How much toilet paper do you have?). The American Enterprise Institute predicted a several years-long depression in income tax receipts (notwithstanding the reality that low-income workers have borne the brunt of unemployment). Brookings observed that while sales taxes were cratering (along with levies on hotels, air travel, and amusement), the property tax was still holding the fort, observed by dozens of local to national studies. The Tax Foundation grudgingly acknowledged that the few states with a real property tax had maintained robust tax collections. In the narrow spectrum of center-left/-right perception, all would be well, but lousy, into 2022.

All have elided the stability of the property tax in this crisis. The few states that do have a real property tax are doing just fine, thank you. Municipalities with higher than average tax levies on wages and sales are suffering more than cities that kept property taxes front and center as revenue sources, like Boston.

There are still narrow interests in the middle of all this evidence trying to roll back this crucial revenue source.  But hey, self-regarding tax protesters of Pennsylvania haven’t given up!

Should we eliminate the property tax? Not that again!

Recently, an active and conservative member of the Republican Party in central Pennsylvania sent us a copy of something called the “Property Tax Independence Act” (PTIA) with the portentous subtitle of “Liberty Equality and Prosperity.”  More accurately, the legislation, a proposal for a constitutional amendment in the state of Pennsylvania, is given the sentimental sobriquet of “House Bill 1776.” As yet, this is not an actual bill, however. Long story short, the PTIA wants to eliminate the property tax and cut off schools (And cities).

Moves to eliminate the property tax have been frequent in recent decades.  As a rule, actual elimination is rare.  Some putative tax relief bills and constitutional amendments (such as Proposition 13) passed with disastrous results.  Passionate defenders of Proposition 13 take on the tone of bitter-enders who see the writing on the wall as their gravy train goes off the tracks.

Yet, CPTR has always researched and helped implement programs that reduce taxation pressures on all society’s strata from poor to prosperous.  We also believe that a functioning market system, coupled with a stable and efficient revenue system, in the end, is the best option for the government. State and local government fiscal wonks quiver in their cubicles as federal aid dries up, never to return.

The Commonwealth of Pennsylvania is a relatively high-tax state.  The nonpartisan Tax Foundation has consistently placed Pennsylvania around 15% of state and local tax burden from 2003 to 2016 (last year available). However, blaming the property tax, while fashionable and certainly knee-jerk, does not withstand scrutiny.  Again, using Tax Foundation figures, the Pennsylvania property tax share of state and local revenue is 29.9%. That places Pennsylvania in the middle of the pack at 22nd-highest, and significantly below the national median of 32.4%.

All property taxes are local.

That heading is accurate, and that’s not necessarily good news. One unappreciated fact about property taxes is that it is a local tax and responds to the local environment. Citizens CAN have an impact, for good or ill. A Pennsylvania state legislator or County Commissioner from an area close to a state border like Maryland sees growth from inflow, with attendant increased government spending contrary to decades of tradition.  We shouldn’t be surprised when the newbies want goodies.

Most Pennsylvanians live in rural areas with one biggish town, usually serving as the county seat.  It might surprise a citizen of Blair County, for example, that the property tax burden in that county comes in at 1,089 out of the nation’s 1,823 counties.  Yes, the property tax is a bargain in Blair, Elk, Cameron, and many other rural and aging counties in Pennsylvania. Eliminating the property tax will launch these affordable places into uncertainty with a statewide system that surely won’t be one-size-fits-all.

Looking at every tax in use is key to understanding the relative lack of competitiveness that Pennsylvania has.  The Pennsylvania income tax is flat and wage-based; it captures revenue from the poorest wage earner. State and local income taxes boost Pennsylvania’s US standing to number 16 in the US.  Pennsylvania suffers broadly higher than average business income taxes. A dog’s breakfast of nuisance taxes generally increases the cost of doing business without bringing any significant revenue for necessary government expenditures.

Part two of Property Tax: The Last One Standing delves further into PTIA and House Bill 1776 beyond the scope of Pennsylvania.  To read part two, click here

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