Comparing tax plans: Gov. Wolf vs. GOP
Both Gov. Tom Wolf and the Pennsylvania House of Representatives have advanced plans that give significant property tax relief to homeowners by increasing the state sales and income taxes.
But the two plans diverge when it comes to who would benefit most.
The $4.9 billion property tax relief plan backed by House Republicans directs more money to residents in school districts with the highest property tax bills, which would favor wealthier school districts. The plan also reduces the property tax rate in every school district, extending more of the perks to businesses than under Wolf’s proposal.
“We tried to drive [property tax relief] to the areas that had the highest property taxes, but in a way that helps everyone,” said Rep. Seth Grove, R-Dover Township, a member of the House Appropriations Committee.
Property taxes provide a portion of the funding for schools.
Wolf’s $3.8 billion plan focuses on relief for homeowners, especially in school districts with
lower property values and high tax rates. It would reduce the property tax rate in 311 of the state’s 500 school districts, and some of the state’s poorest school districts would be able to completely eliminate property taxes.
The money to fund property tax relief in both plans comes from increasing the state sales tax from 6 to 7 percent under the House plan and from 6 to 6.6 percent under Wolf’s plan. Both plans would also raise the state’s income tax from 3.07 percent to 3.7 percent.
Franklin & Marshall College pollster G. Terry Madonna said the major hurdles for property tax relief are finding enough revenue to replace property taxes. And, making major changes to the state’s tax structure creates winners and losers, he said.
Legislators naturally resist a bill that harms their district.
The Pennsylvania House passed the plan introduced by Rep. Stan Saylor, R-Windsor Township, on May 13, and it was sent to the Senate Finance Committee on May 20.
Wolf’s press secretary, Jeff Sheridan, said the governor is “very encouraged” that the House voted for property tax relief.
With the bill’s passage in the House, it means that Wolf and House Republicans will just have to compromise on the details, and they won’t start their budget discussions miles apart.
The state Legislature has until June 30 to pass a budget.
How the plans work
Wolf’s plan and Saylor’s plan accomplish property tax relief in different ways.
The Wolf plan keeps all of the state money transferred to each school district in one pot of money, which is first applied to the homestead exemption.
Under the homestead exemption, a property’s assessed value can be cut by up to half of the median assessed value of all primary residences, or homesteads, in a district.
Currently, most school distr ic t s don’t receive enough money from the state to get close to maxing out their homestead exemption.
If a school district can pay the maximum homestead exemption to each residence, then it can take any remaining money and use it to reduce the property tax rate, which more than 60 percent of school districts would be able to do under Wolf’s plan.
Saylor’s plan divides the state’s money into two new funds: one that would reduce the property tax rate and one that would fund the homestead exemption.
This guarantees that some money would be available to reduce the property tax rate, which benefits businesses and landowners, not just homeowners. All the money raised from the sales and income tax increases under this plan would be applied to property tax reduction.
Saylor’s plan also adds money to the state’s current property tax and rent rebate program geared to help seniors and people with disabilities afford to live independently. Wolf’s plan does not make changes to that program, but adds a new program where all renters who make less than $50,000 would receive a $500 tax rebate.
Property tax relief under Wolf’s plan would not begin until fiscal year 2016-17, while there would be a partial amount of property tax relief provided under Saylor’s plan next year.
Sheridan, the governor’s spokesman, said Wolf’s plan is more holistic.
“The Saylor plan is specifically property tax relief,” Sheridan said. “The governor’s budget is part of a plan that closes the deficit” by sending a portion of the new tax revenue back to the state’s general fund.
Some of the new revenue would come from expanding the sales tax to 46 categories of goods and services that are not currently taxed.
Wolf’s plan would put a sales tax on nursing home care, daycare, cable television, college meal plans and student fees, among other things.
The new taxes on an annual $62,520 nursing home bill in Allegheny County would be $4,752 under Wolf’s plan. On an $86 monthly cable bill, a consumer would pay an extra $78 in sales tax over an entire year.
Grove said he didn’t think Wolf’s plan to expand the sales tax would pass the House.
“It’s really a political nonstarter,” he said.
He added that he thinks it would be bad for the state economy, especially in border counties like York, where shoppers from Maryland visit to avoid paying sales tax.
Phasing out taxes
One of the problems with Pennsylvania’s property tax system is that it’s not administered uniformly across the state.
“In most polls that have been done,” Madonna said, “it’s the most unpopular tax in the state.”
Rep. Grove said part of the problem is that counties reassess their properties at different intervals.
For instance, Blair County is currently doing a reassessment, but the last time it did one was in 1958. Properties that have improved or declined since 1958 have likely been underpaying or over- paying their property taxes for decades.
Allegheny County’s most recent reassessment in 2012, which was only conducted because of a court order, was far from a smooth process as property values immediately increased 46 percent. More than 130,000 property owners appealed the results of their new assessments.
Michael Wood, research director for the Pennsylvania Policy and Budget Center, who recently analyzed property tax relief, said another problem is that neighbors with nearly identical homes may have wildly different property tax bills, especially if one homeowner appealed the assessment.
“I think that’s one of the things that makes people mad about property taxes,” he said, “because they feel like it’s not fair.”
Pollster G. Terry Madonna said the major hurdles for property tax relief are finding enough revenue to replace property taxes.