Efforts to end the funding of schools through property taxes seem to garner a fair amount of support. Tying the funding of public schools to other revenue sources has the advantage of freeing properties owners of tax burden they might not be able to pay. This is especially important for poor property owners trying to build on their household wealth, farmers struggling to maintain their way of life, and the elderly who are likely living on less than what they did during their working years. Meanwhile, shifting the tax burden can also give schools revenue streams that automatically increase, and decrease, with economic activities, thus inflation no longer become as great of an issue.
PA House Bill 76 (Senate Bill 76) titled The Property Tax Independence Act, which failed to pass the PA House in its current form, seeks to end property taxes in favor of increasing the sales tax. This plan would bump the overall sales tax to seven percent from six percent while expanding taxable categories. The plan boasts the added benefit of eventually spreading the burden of school funding across the Commonwealth, so all school districts will see the playing field leveled. This would be great for poor schools, but not so great for high-income school districts.
Meanwhile, this plan taxes items like most foods not found on the approved list for the WIC programs. Just a few years ago, there was an uproar over the exclusion of potatoes from the WIC list. Consumer stables like potatoes are currently excluded from the PA sales tax, because people need those items. The current configuration of this plan has the great potential of harming poor consumers and discouraging the purchasing of necessary/economically beneficial goods inside of Pennsylvania. It also important to remember that an increase in the sales tax discourages spending in general and can make Pennsylvania less competitive when surrounding States do not impose similar taxation burdens. In addition, this plan increases the personal income tax slightly, which also makes PA less competitive.
Furthermore, the elimination of the property tax also affects wealthy landowners and wealthy businesses. Where school districts might now collect on multimillion-dollar estates, these owners would be able to avoid the tax burden by changing their primary residence, which would be especially easy for those who are simply vacationers, or enjoying significant capital gains. For wealthy businesses with extensive infrastructure or expensive facilities, this tax shift assures such firms will not have to pay school taxes. Remembering that the sales tax is only paid by those purchasing goods in PA, this plan shifts a significant tax burden from the wealthy, who do not have to purchase key good in PA, to the working class.
Finally, this proposal also undermines the rights of local government. In this particular case, this probably will not impact the rights of residents too much. Other plans, such the fairly recent consolidation of local income tax offices in favor of a handful of private firms, did.
On the other hand, House Bill 1189 seeks to give school districts and most townships the option of reducing or eliminating real estate tax with an elimination tax, which would be constructed of a combination of an Earned Income Tax (EIT), Mercantile Tax, and Business Privilege Tax. The obvious fault with this plan is that it creates chaos in terms of consistency across municipalities and counties, which can make the Commonwealth of Pennsylvania more confusing and less competitive in terms of business. In addition, it is less likely that localities will be willing to raise taxes on businesses, except for those districts that enjoy great economic success. Henceforth, this plan is likely going to led to the shifting of the property tax burden onto the working class.
Moreover, there are benefits to eliminating the property tax, but both these plans need adjusted. In principle, Bill 76 makes more sense in terms of competitiveness while it has greater room for improvement. If legislators can shift their sales tax proposal to include different items to be newly taxed and find other tax sources that address the shortfalls of the proposal, Bill 76 could be very beneficial to the residents of Pennsylvania. That said, Bill 1189 seems closer to becoming law after it passed in the State House on Wednesday, October, 2, 2013.
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