The Budget Debacle and the cost to Pennsylvania Taxpayers.

This has been one crazy week regarding the budget in Pennsylvania.  Over the previous weekend we read news stories like the following:

“One new idea under discussion could provide a cornerstone of the cash Wolf is seeking: diverting the roughly $600 million in slot-machine gambling receipts that school districts currently pass along to homeowners as property tax reductions. That stream of money would shift to the state treasury, while negotiators are discussing an increase in the state sales tax to offset reductions in local school property taxes, another concept that is important to Wolf to improve equity in school funding. The new money from a higher state sales tax would replace the diverted slot-machine dollars to schools – and then some.”

Then it broke that the 600 million was going to be used to pay down the pension debt.  Now we’re being told its 350 million, not 600 million.  First we read that the new tax proposal would generate 2.1 billion in relief, now we’re reading that its closer to 1.4 billion.

These are the people arguing about the budget and it seems to me that a 250 million misquote is something that should raise eyebrows about the competence involved in crafting a budget that involves taking money from tax-payers in the Commonwealth.

This isn’t the first time we’ve had a fudging of numbers while pushing for tax increases.  Back when Wolf was pushing the severance tax on Marcellus Shale, he got those numbers wrong as well.  Wolf insisted that a tax on gas extracted from shale would yield more than $1 billion. The Independent Fiscal Office, however,  estimated the revenue at $555 million

 “It is shocking how much the administration has overstated the revenue a severance tax would generate,” said House Appropriations Committee Chairman Bill Adolph. “Our analysis shows that, due to current market conditions, a severance tax would only generate a fraction of what the governor suggests and would not get anywhere close to the billion the governor is promising for schools across the state.”

How is it possible to plan a budget when the numbers are this wrong?

All along, the centerpiece of the budget debate has been framed around Property Tax with legislators trying to sell plans to increase taxes while lowering property taxes.  One bill, SB 76, would actually eliminate the school property tax by doing the same thing; raising the PIT and Sales tax.  I’ve always held on to the premise that if the school tax remains in place we get a tax increase.  We will be paying a higher PIT and Sales Tax and any reduction we would have seen would have been short-lived as school districts would raise their taxes above current levels as proven by the independent fiscal office review of the astronomical rate of growth statewide concerning the school property tax.

There is a delusional aspect of the progressive mindset that seems to think that numbers can be what they want them to be just because they say so and any data that refutes those numbers is simply to be ignored.   The problem for the people is that regardless of how Utopian their numbers may seem, we don’t live in that fantasy world…we live in the real world and in the real world, the numbers matter.  The numbers matter because our ability to balance out home budgets is going to be greatlyr impacted by the exaggerated promises of a government that inflates the promises to get the tax.  Once enacted, those taxes have to be paid or we risk property seizure, bankruptcy and foreclosure.

Through the history of property tax reform bills the delusional has prevailed.  Act 1 limitations were supposed to stop runaway property tax increases….It didn’t.  The gambling revenue was supposed to provide the potential for elimination of property taxes….it didn’t.

They keep telling us that having regular county-wide assessments fixes unfair irregularities in the property tax.  It doesn’t.  County-wide assessments are followed by countless appeals, the majority of which prove the assessed value of the property is wrong.  Three years after a county-wide assessment in Lebanon County and those appeals are still ongoing often coming at great expense to those filing the appeals as well as to the cost of government.

These delusional promises always come with a heavy price tag on the working families in this Commonwealth but that’s the dangerous collateral damage of the delusional promise; if they are wrong, it comes out of our pocket, not theirs.

Now we have some legislators claiming that the recent proposals in this budget deal that started out with numbers that don’t work would provide a potential for a 35% decrease in property taxes and sadly there will be a lot of people who are going to believe that.  12.7 billion dollars of education funding currently comes from the property tax.  First they’ll take away the relief from gambling revenue and use that money for to pay down the pension debt, which is in the billions, not millions.  Next they’ll raise the sales tax to generate an additional 2 billion according to their numbers which would be used for property tax relief

Got that….they’ll be raising your taxes to give you money back and they are calling that relief.  The problem here is that numbers are all wrong.  This isn’t a even a dollar for dollar tax shift….its a tax increase.

In order to see a 35% decrease in property taxes the new sales/use tax would have to generate $4.45 billion, not 2 billion.  Oddly enough the overstatement of the reduction plays right in line with the previous numbers.  The supposed revenue from the Shale industry was almost 2 times reality.  The supposed money from gambling to pay down the pension debt was almost 2 time reality.  The supposed relief claimed by some legislators is also 2 times more than we could possibly see and the fact is it still won’t be relief because we’ll be paying more in taxes to get less back.  As this continues it will get worse.  School property taxes will continue to increase to fund the pensions and pay the rising medical costs from the Rolls Royce benefits packages of the public sector.

Furthermore, since we haven’t seen how that 2 billion will be dispersed nor have we seen any evidence that the extra money going to the schools would actually translate into lower property taxes asking us to support something along these lines is ridiculous based on the information we are receiving.  The devil, as they say, is always in the details and all we have at this point in time are numbers that are questionable backing up a claim that doesn’t add up.  Based on that we are supposed to make an informed decision.  Expecting that from the voters is delusional!

During all of this snake-oil salesmanship in the budget debate schools and local government are forced to borrow money because the cash from government isn’t going to come until the budget is resolved.  Those loans are not interest free.  That interest will, once again, come through a local property tax because the State Government isn’t getting the job done and, once again, the numbers games being played come at a price.  Once again, we are just the collateral damage of institutions more interested in pushing agenda’s than Constitutionally protecting the rights of property of the people in this Commonwealth.

As I see it, only one bill regarding property tax has been vetted.  Only one bill regarding property tax has gone through that process several times to make sure the numbers worked and the numbers were verifiable.  That bill is SB 76 which totally eliminates the property tax.  The rest of these proposals are being sold in pipe dreams where the only smoke from those pipes is derived from the burning of the Commonwealth taxpayers.

Key points from the Independent Fiscal Office report included:

  • The report projects that in year five after enactment of the legislation will save $1.152 billion annually in the replacement revenue compared to the growth of property taxes if that system remained in place (Page 4, fourth line from the bottom). Property taxes historically rise at greater than three times the level of inflation (which, by the way, is unsustainable in the long term); The legislation limits the growth of the replacement funding to the rate of inflation.
  • The elimination of school property taxes increases the disposable income of property taxpayers. The analysis assumes that 70% of the property tax cut goes to individuals. It further assumes that homeowners spend 90% of the increase in disposable income. (Pages 17-18) (This would be an explosive economic stimulus for Pennsylvania.)
  • The analysis indicates that the bill will cause home values to increase, on average, by more than 10% statewide. (Page 23) (This would restore a big chunk of the equity that was lost to homeowners during the 2008 housing downturn.)
  • (Regarding business entities) … the income flows through to individuals as higher disposable income. For pass through entities, the analysis assumes that owners and shareholders spend 90 percent of the increase and 70 percent is spent on taxable goods and services, yielding another secondary effect of $34 million in increased sales taxes for FY 2013-14. (Page 18) (More economic stimulus.)
  • Working age homeowners realize a tax cut. The analysis finds that the increase in federal income tax (through lower itemized deductions), state income tax, and sales tax is more than offset by the reduction in property taxes. (Page 21)
  • Retired homeowners realize a significant reduction in taxes. The analysis finds that the property tax reduction easily offsets any increase from the higher sales tax. (Page 21)
  • Benefits would also accrue to home builders, home developers, and other land owners who convert current land holdings into new housing plots. Employment would increase in the construction sector as well. (Page 23)
  • The elimination of property taxes would significantly reduce the property tax share and would clearly increase the attractiveness of the Commonwealth for business location and expansion. (Page 25) (Such an increase of businesses in Pennsylvania and expansion of existing businesses would create many much-needed jobs.)

You can learn more about the only properly vetted property tax bill by visiting www.ptcc.us.

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