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March 9, 2012 | By | Posted in Legislature

Updated: Local option sales, income taxes could replace a portion of property taxes

Property tax reform debate will begin — again — Monday
 
By Eric Boehm | PA Independent
 
HARRISBURG — Property tax reform is something of a holy grail in state politics, but House Republicans are getting ready to begin the crusade once again.

 
On Monday, the House Finance Committee will get its first look at new legislation from state Rep. Seth Grove, R-York, that proposes to give counties and municipalities the option to shift some of their property tax burden to personal income or sales taxes. 
 
While not a direct tax increase or decrease, those pushing the legislation laud the flexibility it will provide to local governments dealing with high property taxes.
 
“The idea is to start moving away from property taxes and the main way to fund education at the local level,” Grove said. “The only way to achieve changes in our system is to let it happen at the local level.”
 
House Bill 2230 would allow a county to implement a local option sales tax of 1 percent on all purchases via a countywide referendum. The revenue from the additional sales taxes would offset property taxes in each school district with a formula based on student enrollment.
 
Alternatively, counties and municipalities could institute — without voter approval — a swap of property taxes for personal income taxes.
 
The revenue collected would offset a reduction in property taxes by at least 30 percent, and the property tax mileage rate would be frozen for the future, although the new income tax rate would be allowed to increase.
 
Because property taxes are based on perceived wealth and not the ability of an individual to pay, the sales or income taxes would be fairer, Grove said.
 
From the top level, the changes would be a revenue-neutral tax swap, though Grove said some taxpayers may end up paying more, while others would pay less, depending on their current property tax situation and the changes the local governments would enact.
 
Some in the property tax reform movement are not convinced it would be a positive move.
 
David Baldinger, one of the leaders of the Pennsylvania Coalition of Taxpayer Associations, a group of 68 local taxpayer advocacy groups, said he opposes the Grove plan.
 
“They keep offering the same failed ideas, and they are not acceptable to the voters. We have to have the political will to do this the right way,” said Baldinger, who is expected to testify at Monday’s hearing.
 
Grove said his plan is different from previous attempts to replace the property tax with a sales or income tax, because it is focused on local solutions to what is, in essence, a local problem.
 
“There is too much diversity and too much difference between the counties and the tax situations,” he said. “That is why property taxes have been so difficult to deal with from the state perspective in dealing with 500 school districts and 67 counties.”
 
Despite widespread interest in making changes, getting an agreement on how to do so generally has been elusive.
 
Mark Hendrickson, a professor of economics at Grove City College near Pittsburgh, said the property tax system is an anachronism with its roots in agrarian society where having more land equated with making more money.
 
Attempts to repeal or replace part of the property tax system failed in the 1980s,1990s and in the mid-2000s.
 
Hendrickson said those efforts failed, in part, because they did not completely do away with the property tax system.
 
“If you’re trying to sell people on a higher income tax or consumption tax, but not abolish the hated property tax, then I think there is the residual fear that you’re only growing the tax monster,” Hendrickson said.
 
Now, the powers that be say they are open to having the conversation again this year
 
Thursday, House Majority Leader Mike Turzai, R-Allegheny, said property tax reform generally has support from both sides of the aisle.
 
 
He said the property tax debate would not be tied to the budget this year.
 
Tim Eller, spokesman for Education Secretary Ron Tomalis, said the Department of Education backs the concept behind the Grove proposal.
 
“At this point, the Department has not reviewed the full proposal; however, we are supportive of the concept of allowing local officials the ability to reduce the property tax burden on homeowners,”
Eller wrote in an email to PA Independent on Thursday.
 
Local officials also support making changes, particularly in parts of the state like Grove’s York County, where the population has surged, driving up education costs and property taxes along with them.
 
In Monroe County, which has experienced a similar surge in the past decade, Suzanne McCool, a county commissioner and a Democrat, said the property tax burden is driving people away and increasing the foreclosure rate.
 
“We need to do something, and they better do something soon,” she said.
 
Though not familiar with the details of Grove’s plan, McCool said counties across the state — and Monroe County, in particular — are looking for more autonomy.
 
State Rep. Tarah Toohil, R-Luzerne, who is backing the legislation, said the flexibility offered by the plan was important.
 
“It would allow communities where property taxes aren't a problem to keep the current system in place, while allowing communities where taxpayers are calling for some relief to make the switch to another funding method,” Toohil said.
 
This story was updated to correct the spelling of Suzanne McCool's name.
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