The Herald, Sharon, Pa.

March 13, 2013

Plan replaces school tax with sales taxes

By John Finnerty
CNHI Harrisburg Correspondent

HARRISBURG — The authors of legislation to eliminate school property taxes by increasing the state sales and income taxes on Tuesday argued that the time is finally right to eliminate an extremely unpopular tax, while pointing to an analysis completed by the state’s Independent Fiscal Office as evidence that their plan will work.

The Property Tax Independence Act would get rid of school property taxes, but raise the sales tax from 6 percent to 7 percent and increase the personal income tax from 3.04 percent to 4.34 percent. The bill would also remove a host of exemptions for goods and services that are now not subject to sales tax. Among the items that would be taxed: caskets, garbage service, textbooks, beverages purchased at soda machines, newspapers and magazines, candy and tickets to sporting events and amusement parks.

Rep. James Cox, R-129th of Berks County, held a penny in the air during a Tuesday afternoon news conference and said that the coin symbolized the cost of getting rid of property taxes. The penny would be the increased amount of sales tax collected on every dollar spent, he said.

“This is not a Republican idea. This is not a Democrat idea. This is a Pennsylvania taxpayers’ idea,” said David Argall, R-29th of Schuylkill County, the prime sponsor of the Senate version of the bill. “This archaic, outmoded system must be eliminated. Property taxes are the most universally hated tax in Pennsylvania.”

A version of the bill proposed last year called for a personal income tax rate of 4.01 percent. The newest incarnation of the bill would set the income tax at 4.34 percent.

The income tax rate was increased because the state’s Independent Fiscal Office determined that the 2012 version of the bill would have come up $1 billion short of adequately replacing the lost property tax.

The income tax increase would translate into $330 more for a family making the median household income in Pennsylvania of $51,561.

For a family with an income of $80,000, the income tax increase would be $512.

Those amounts are in addition to the increased amount of sales tax, but the fiscal office said the median property tax bill in Pennsylvania is $2,200.

Lawmakers contacted Tuesday afternoon, expressed skepticism and wondered if the legislation takes an overly simplistic approach to the issue of school funding.

Rep. Bradley Roae, R-6th of Crawford County, said that tackling how schools are funded does little to resolve the issues that are making schools so expensive.

In Crawford County new teachers start at about $49,000 a year and pay almost nothing for health insurance. New college graduates working for companies in our area start at about $35,000 a year and pay about $300 a month for health insurance, Roae said.

“About two-thirds of a school district budget is for salaries and benefits, so two-thirds of your property taxes pay for salaries and benefits. We can shift away from the property tax, but people need to understand that no matter what taxes we use, taxpayers will have to pay for the cost of the union contract.”  

Even a co-sponsor of the legislation, Rep. Fred Keller, R-85th of Union County, said he only put his name on the bill so that he would be “in the center of the conversation,” and said he is concerned that the bill would be unfair.

Keller said that school districts augment their local tax revenue by collecting earned income tax.

Keller opposed the 2012 version of the bill because it did not address the disparity in local school earned income tax rates.

Keller said that he received numerous phone calls from proponents of the legislation from across the Commonwealth who were critical of his opposition.

“I am for the taxpayer, but the bill would have been bad for my constituents,” Keller said.

The proposed change in the income tax rate amounts to more than a 40 percent increase in that tax. The sales tax increase would be more than 16 percent.

“Anyone can spin the numbers, but that is the kind of stuff I’m looking at,” Keller said.

State Sen. John Wozniak, D-35th of Cambria County, said that any efforts to replace property taxes will always replace one set of winners and losers with another set of winners and losers.

“They make it sound simple, but it’s not,” Wozniak said. “Senior citizens would have to be out of their minds not to want this.”

But there remain concerns about how the sales and income tax increases would impact the bottom lines of working families.

Wozniak said he would prefer that the state attack school funding from another direction. He intends to introduce legislation that would provide for countywide school tax rates to eliminate inequities in the wealth of neighboring districts.

Rep. Gary Haluska, D-73rd of Cambria County, said that he would be more comfortable with legislation that created a blended funding model that softened the dependence on property tax by using more sales and income tax.

“I don’t know how the numbers will come out,” Haluska said. “I would admire them if they come up with a way to make them work. But I don’t think you can get away from property tax completely. That’s a sustainable tax, whether the economy is good or not.”

If the bill passes, Pennsylvania’s personal income tax would still be lower than the identical taxes in three neighboring states – New York, Delaware and Maryland. If the bill becomes law, the sales tax in Pennsylvania would be higher than the sales tax in all neighboring states, with the exception of New Jersey.