Threading the Property Tax NeedleReducing Property Taxes and Responsibly Funding Schools

Presenter:

Stephen HerzenbergEconomist and Executive DirectorKeystone Research Center

herzenberg@keystoneresearch.org; 717-805-2318

An Outline Of What We Will Discuss Today

• Property taxes in PA as a whole and school districts

• The impact of property tax elimination

• Targeted property tax relief – the concept

• Targeted property tax relief – the cost with different assumptions

• Targeted property tax relief, increased school funding, and the fair share tax: a winning formula?

Property taxes in Pennsylvania and its school districts

The impact of property tax elimination

Funding School Property Tax Elimination: A Reverse Robin Hood Proposal

• School property tax elimination funded by a 61% increase in the personal income tax rate (3.07% to 4.95%) and hike in the sales tax to 14% to 7% (from 6%), imposed on more services and products

• The Institute on Taxation and Economic Policy (ITEP) estimates that higher sales and income taxes would fund a reduction property taxes (for residents and nonresidents) of $14.1 billion.

• ITEP estimates that on average families in Pennsylvania pay $334 more in taxes 2017-18.

Targeted Property Tax Relief to People Who Need It Most

• Limit relief to taxpayers • below a certain income (e.g., $50,000, $80,000, or $110,000)

• whose property taxes are above a certain fraction of their income (e.g., 3% or 4%)

• Place a cap on the amount of relief per family (none, $1,000, $2,000)

• With these variations• Cost ranges from $297 million to $1.7 billion

• Families below $40,000 receive 41% to 100% of the relief

The Targeted Property Tax Relief Sweet Spot

• Option 1: 3% income threshold, $2,000 cap, eligibility to $110,000• …decent distributional properties

• …drive significant money to suburban Philadelphia households

• …cost of around $1.3 billion

• Choose

• Option 2: if the cap is $1,500, the cost would be about $1 billion

House-

hold

Income

PTRR

Eligibility

Income

Below

$50,000

From

$50,000 to

$80,000

From

$80,000 to

$110,000

3.0% None $1,718 $1,776 $1,747 43% 32% 25%

3.0% $2,000 $1,151 $1,189 $1,170 42% 34% 25%

3.0% $1,000 $732 $756 $744 42% 34% 24%

4.0% None $1,271 $1,326 $1,298 50% 30% 21%

4.0% $2,000 $853 $889 $871 48% 31% 21%

4.0% $1,000 $544 $567 $556 48% 32% 20%

%age of

income

above

which

property

taxes are

eligible for

relief

Share of Relief to Households

Cost of

Relief

(millions)

Targeted Property Tax Relief Variations in Which Incomes Below

$110,000 May Receive Relief

Rebate

cap

%age of

income

above

which

property

taxes are

eligible for

relief

Calculated Amount

and Cost of Relief

(millions)

Sweet Spot Number Two

• The low state contribution to school spending is the thread that binds together school funding inequity and local property tax burdens

• Can we create a winning coalition in 2019 that raises revenue fairly for property tax relief and school funding?