Are property taxes going away?
A basic principle of progressive – i.e. fair – taxation is that taxes should be reasonably linked to the taxpayer’s ability to pay; tax payments should rise as incomes rise. However, for many taxpayers, property taxes – primarily for schools – do not meet this standard of fairness. Two groups of taxpayers for whom property taxes are often high relative to their incomes are low-income families and seniors. They are much more likely to face high housing costs – exceeding 30 percent of their income – than families with higher incomes. Partly due to property taxes, families below the poverty line often spend up to 50 percent of their income on housing, compared to the national median of 22 percent.
The classic example is a senior citizen who has lived in her house for decades and who has seen a large increase over time in the assessed value of her house, triggering a higher property tax bill. This situation is not limited to senior citizens; many younger, working-class families are also facing property tax bills that are increasingly out of line with their incomes. Another group of taxpayers whose property taxes may be high relative to income, at least temporarily, are those who have experienced a sudden decline in their incomes, for instance as a result of losing a job and taking a new one that pays significantly less.
Some members of the Pennsylvania legislature are once again proposing to do away with the property tax by replacing it with increases in the sales tax and the earned income tax, and a business privilege or mercantile tax. The money collected, by the counties, would be paid to the Commonwealth and deposited in a Property Tax Reduction and Diversification Fund with an account for each county. On July 1 of each year, “the State Treasurer shall make disbursements from the account of a county…Fifty percent of the funds disbursed from the Property Tax Reduction and Diversification Fund shall be used to reduce property tax millage rates.”
While property tax relief is a worthy goal, I doubt that most Pennsylvanians would choose to have the state intervene in collecting and distributing a significant amount of the money for schools. There is a better way to provide tax relief that would not require the state to play a major role. The answer is a circuit breaker.
Like the electrical devices that shut off electric power to prevent circuits from overloading, property tax circuit breakers prevent property taxes from “overloading” a family’s budget by “shutting off” property taxes once they exceed a certain share of the family’s income. Here’s how it works. The state establishes a maximum percentage of income that a qualifying household is expected to pay in property taxes. In the 18 states that use a circuit breaker, this can range from one percent to nine percent; in some states the percentage varies with the family’s income level. If the household’s property tax bill exceeds that limit, the state rebates either all or a portion of property taxes above the limit. Circuit breakers kick in after the fact; taxpayers who participate in these programs are still required to pay their entire property tax bills upfront. A number of other states offer similar property tax credits to families who meet certain income requirements and who pay property taxes. These credits, like the property tax rebate here in Pennsylvania, are based on the family’s income, not on the share of the family’s income that goes towards paying property taxes.
Circuit breakers would not require the state and the counties to create an entire system solely to manage the collection and distribution of money for schools. They also leave the residents of the school districts in control of their finances.
Mark Berg is a community activist in Adams County and a proud Liberal. His email address is MABerg175@Comcast.net