The state House voted down a bid to replace school property taxes with an increase in sales tax Tuesday after lawmakers from both sides of the aisle cautioned that the plan would leave the state with a billion dollar shortfall.
Voting in favor of the bill would be “irresponsible just so you can go home and tell people that you voted to eliminate property taxes,” said Rep. Kerry Benninghoff, R-Centre County, chairman of the House finance committee, while speaking on the House floor.
With Tuesday’s vote, the House is poised to take up a more modest set of property tax reforms that would allow school districts to decide whether to increase earned income taxes and business taxes.
The projected shortfall in revenue was just one of the problems with the attempt to replace property tax by increasing the sales tax to 7 percent, while increasing the personal income from 3.07 percent to 4.34 percent.
Residents of 34 school districts, mostly in the suburbs around Philadelphia, pay no earned income tax for schools now, as the schools rely solely on property tax for local revenue. Residents in 381 school districts, including all 32 in Crawford, Erie, Mercer and Venango counties, pay 0.5 percent earned income tax for schools. Residents in 11 school districts pay 1.5 percent or more in earned income tax.
For a family with $75,000 in earned income a year, the difference between 1.5 percent and 0.5 percent is $750 a year.
State Rep. Fred Keller said that the four school districts in his 85th legislative district that serves Union and Snyder counties have among the highest earned income rates in the commonwealth. The sales tax plan would have forced residents in those districts to continue paying local school taxes while also paying into the statewide sales tax. Keller called that unfair and voted against the bill.
The legislation also would have allowed school districts to continue collecting property tax to pay off debt. Districts that have gone on building sprees would have still had property tax, Keller said.
State Rep. Seth Grove, R-York County, said that those concerned about the disparity in earned income tax should support his legislation, which makes eliminating property tax optional for school districts. The bill would also let the local school board determine how much to increase the earned income tax and business taxes.
Grove spoke in opposition to the sales tax approach for property tax reform.
Beyond the fiscal concerns, Grove said he objected to the bill because it “absolves corporations of property taxes and lays their taxes on backs of working class.”
State Rep. Chris Sainato, D-Lawrence County, said that almost everyone says they want property taxes eliminated, but the alternatives are just as bad.
“That’s why this has been going on for 30 years,” Sainato said. Cox’s bill would not only increase the sales tax, it would add a variety of new services and products to the taxable list. “For a lot of people, it would be substantial tax increase,” Sainato said.
By the numbers
A total of 381 Pennsylvania school districts, including all 32 in Crawford, Erie, Mercer and Venango counties, collect 0.5 percent in earned income tax. But 11 collect more than 1.5 percent. And 34 collect no earned income tax at all. Those disparities may throw a monkey wrench into efforts to eliminate property taxes as a source of local school revenue, lawmakers worry.