Latest property tax proposal hurts seniors

Eliminating school property taxes in Pennsylvania is no simple fix. All responsible proposals to do so require raising or expanding one or more other taxes.

One idea that recently got attention — mostly negative — is to tax retirement income at 4.92%, with 3.07% going to the state and 1.85% going to the taxpayer’s local school district. Social Security benefits would not be subject to taxation. The measure also would impose a 2% local sales tax on food and clothing — items now exempt from the state’s 6% sales tax — with an exemption on the food tax for those on public assistance.

The proposal has been floated by state Rep. Frank X. Ryan, an accountant and a Lebanon County Republican. He plans to offer the proposal as a bill on Aug. 15.

State Rep. Mark M. Gillen, a Berks County Republican, spoke against Ryan’s proposal, calling it “a new tax on the nest eggs of retirees.”

State Rep. Thomas R. Caltagirone, a Reading Democrat, said taxing retirement income is “out of the question.”

State Sen. Judy Schwank, a Ruscombmanor Township Democrat, was not excited about the idea, either, but she credited Ryan for at least injecting “new energy” into the debate over how to get rid of school property taxes.

And state Sen. David G. Argall, reached by email this week, says he wants to hear the details.

Schwank said she planned to participate in a workshop organized by Argall to delve into the issue.

“The idea is let’s review everything,” she said. “We really have to look at every possible option.”

The proposal seems to address a central concern of those who want to get rid of the tax: preventing seniors from losing their homes to ever-increasing property taxes.

A tax on retirement income that exempts Social Security would seem to protect seniors on fixed incomes from that fate. And a percentage tax on retirement earnings would self-correct for losses in income.

Ryan’s 2% tax on food and clothing goes in the other direction, imposing a regressive tax on necessities.

Overall, though, Ryan seems to be dealing with a central reality in the debate over eliminating school property taxes: the money lost would have to be replaced.

The debate over whether to tax retirement income in Pennsylvania is a serious one.

Caltagirone said it would not be fair to tax retirement income and that the lack of such a levy encourages many retirees to move to Pennsylvania.

Ryan addressed that issue in an interview with the Pennsylvania Institute of Certified Public Accountants.

“By getting rid of all property taxes for seniors and everyone else, the problem that occurs is we become a magnet then for seniors,” Ryan said, “and one of the biggest cost drivers in the commonwealth for our budget is the cost of seniors.”

Ryan would seem to have the better of at least part of this argument. Pennsylvania seniors who paid their way while working do not deserve to be pushed out of their homes by ever-rising property taxes, but seeking to import more seniors is not the best strategy for growing our economy.

Pennsylvania seniors are right, however, to fear opening the door to taxing retirement income.

Were it to be seen as a legitimate source of revenue, there’s no guarantee the 4.92% rate would hold. Our lawmakers in Harrisburg might fall into the same bad habits on this tax as they did with the property tax.

Act 1 of 2006 was supposed to cap property tax increases, with exceptions for rising costs. Those rising costs soon came to include the pension increase the Legislature passed five years earlier.

After boosting their own pensions by 50% (and those of state employees and public school teachers by 25%), lawmakers in Harrisburg now scold school districts for raising property taxes.

Given such history, Pennsylvania seniors can be pardoned for wanting the state to continue keeping its hands off their retirement income.

Still, Ryan’s idea deserves a hearing as part of the effort to eliminate school property taxes with an honest plan that continues support for public education.