May 23, 2014

Pennsylvania’s Property Tax Tug of War

Pennsylvania, like most states, funds public education with property taxes. A bill in the state’s Senate, though, would replace these taxes with state income and sales taxes, triggering a debate that explains why it’s hard to change or eliminate a particularly unpopular tax. That debate has the look and feel of a tug of war, but with a twist.

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A tug of war is a good metaphor for characterizing many public policy debates. Quite simply, it’s a contest in which two teams pull at the opposite ends of a rope until one team drags the other over a central line. In Pennsylvania’s case, though, there are several teams pulling on ropes tied to a ring, with each team pulling from a different angle. Some teams try to move the ring in certain directions, while others are trying to keep it where it is.

State Senator David Argall started this multi-team contest when he proposed funding public education with state instead of local taxes. Argall believes the property tax is simply the wrong tax to fund schools. It was instituted in the 1830s when times were different, and today bears little or no connection to one’s ability to pay.  The property tax can “literally make people homeless. It can drive seniors on a fixed income out of a home that they may have built 50 or 60 years ago.  It’s incredibly unfair,” Argall told Stateline’s Elaine S. Povich.

But, as Povich pointed out, “replacing property tax revenue is not easy, and the tax also has [its] defenders—usually the constituencies that would pay more taxes if they went away.” The defenders include local officials. George Washington University professor David Brunori argues the property tax is a good tax because municipalities control how it is spent. The revenue states share with municipalities often comes with strings that limit or restrict local discretion. 

The Pennsylvania Budget and Policy Center and several education and civic engagement groups argue that the property tax provides a more reliable revenue stream than state taxes. The Pennsylvania Chamber of Business and Industry opposes Argall’s bill for different reasons, mainly “fears that raising income and sales taxes would hurt the state’s economy.”

Where does the contest stand now? The Senate finance committee will probably approve the bill, but the outlook in the House is cloudy.  The House “rejected similar legislation on an amendment earlier this year, and is apt to do it again.”  The governor supports the bill, but “noted the revenue must be replaced,” Povich stated.  The governor’s observation suggests the bind legislators find themselves in: they “might not get credit for reducing property taxes since they are levied at the local level, but would get the blame for raising income and sales taxes,” observed G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College.