Sometime when I’m out talking about school property tax elimination there are those who point out that all taxes a really a tax on our property, whether that be income or real estate.
There is a point to what they are saying but I think those who cling to this mentality as a tool to oppose school property tax elimination are also clinging to a delusional reality. The delusional reality is not that all taxes are a tax on our property, but the delusional reality rests in that by saying so they think that somehow the taxes on our homes is the same as the tax on our income. It isn’t and let me explain why.
Let’s start from the assumption that they are correct (and I do believe that they are); that all taxes are actually taxes on our property (not in the terms of real estate but in the terms of property as all things that rightfully belong to us).
If this is true then we have to ask the question “should all those taxes on the things belonging to us demonstrate some level of equality?”.
Look at the PIT and the Sales Tax. The PIT tax is a tax on new income only. The Sales Tax is a tax on newly purchased items. Both are equally applied to all residents (3.07% of your income and 6% sales tax on items we purchase). The only place this is not true is Philadelphia and Pittsburgh when it comes to the sales tax but that has little to do with the state. They did that to themselves.
Unlike the tax on our homes, both of those taxes are framed around an ability to pay.
Now compare those taxes to the property taxes. With 67 counties, 500 school districts and 2561 municipalities we have a potential for 3,128 different levels of taxation.
Let that sink in for a minute. We have seen little to nothing as far as increases in our PIT and SUT taxes in the last 20 years. The property tax, however, has gone up 149%. The number of tax increases on Pennsylvanians to make that happen is almost unfathomable. If only 10% of our schools, municipalities and counties raised our taxes each year that would mean, over the span of 20 years, a total of 6,260 tax increases.
Perhaps you can explain to me again why you fear that if we centralized the funding of education through a state PIT and SUT tax we would see increases in those taxes annually but you have no problem with the thousands of tax increases at the local level.
The revenue generated through the PIT and SUT taxes grow naturally with the economy and they do so without the need to increase those taxes. That isn’t true when it comes to the property tax. The revenue can only increase through raising the tax. It will not increase naturally on its own.
Where the PIT and SUT taxes are based on actual values determined in a fair market, the taxed value on our homes is not. Home value is achieved by an arbitrary but allegedly educated guess on home values through an assessment that has continually been proven to fail at its objective of making the property “more fair” as though such a thing were even remotely possible.
In a fluctuating market your wages may vary but the tax you pay will also fluctuate with those changes. In a down economic time, you may lose your job and, as a result will not be paying a PIT tax until you are, once again, employed. In that same down economic time, your spending will likely decrease so the revenue generated from the SUT will drop. This a natural effect in a market based economy and system of taxation. This reflects ability to pay. You don’t continually pay an SUT tax simply because you own something, only when you buy something new.
Even in those down economic times, revenue generated through the PIT and SUT at the state level actually increased without tax increases. During those same times the revenue generated from property taxes also increased but only because the tax rates increased as well. SO while the majority of the state was struggling through a recession, their taxes on the very homes they lived in increased to meet the demands of the tax collectors.
The housing market is reflected in that same market. In down economic times, home values also drop but the assessed value of your property will not reflect the economic downturn because it is artificial; not natural. In fact house values fluctuate constantly. That fluctuation is caused by several factors. The assessed value on your home will not fluctuate unless there is a reassessment countywide or you become the victim of some school districts decision to spot reassess you. In the majority of cases your assessed value will go up.
One reason for the fluctuation of house value is market demand. Certain aspects of your home will make it more appealing to sell depending on the desires of those seeking to purchase a new home. That is natural. The real fair market value of a home is determined by an agreed upon price established by a willing buyer and a willing seller.
By contrast there is nothing natural about the assessed value of your home. It’s artificially generated using formulas that don’t really work. If they did we wouldn’t see the number of successful appeals that follow every countywide reassessment.
The property tax will also impact the value of a home. Property taxes will actually take away from home value. It will lower the value of your home and every tax increase adds to that drop in value to you as a homeowner. As your home value drops, the assessed value does not drop to adjust for the impact of the millage increase. It stays the same even though the real value of your home may have just decreased because of the tax increase.
Again, this is because it does not follow the natural process of the economic ebb and flow. The arbitrarily determined value of your home determines the tax you will pay and that arbitrarily determined value will not naturally ebb and flow with the economy.
Show me any other tax that works like that.
Show me any other tax that requires something like regular assessments and a state tax equalization board, both of which require additional revenue to make work (even though they don’t actually work when it comes to doing what they were created to do).
If we were to judge real estate taxes simply by the standard of other forms of taxation we come to the same conclusions we always reach when we talk about the property tax in terms of real estate. Its simply wrong.
Oddly enough, the majority of our opponents admit that. When pressed, our opponents will tell us that they know the property tax is unfair. They will admit that it creates inequities. They will agree to the inherent flaws of the property tax but they still defend it.
There are those that go so far as to say that something should be done, but, when you press them for their solution, they have nothing. What usually follows is then a defense of the property tax that they just admitted was unjust, inequitable and unfair. Isn’t that the epitome of hypocrisy.
No matter how it’s spun the property tax on our real estate remains the most regressive and most unfair tax in existence. It begins by using a false assumption of wealth based on an even greater falsehood of assessed property value.
The fact that we do assessments begins with stating that the property tax, at the time of need for reassessment, has created inequities in taxation.
Let that sink in. Reassessment happen because, they admit, the property tax has created inequities. We have reassessments because they know and admit that the property tax system doesn’t really work when it comes to the matter of fair or equal taxation as required by our Commonwealth Constitution.
It then sets out to do what it never really accomplishes because it never really makes it fair. We will spend millions in these reassessments adding to the cost of the property tax and yet it never accomplishes what it sets out to accomplish. It is just one of the many flawed aspects of government interference that have arisen because we have a property tax.
The property tax on our homes assumes that our homes actually generate the income necessary to pay the tax. It doesn’t. While, over time, our homes do generate equity, that equity never translates into money to pay the taxes. We don’t really see that equity unless we refinance or we sell that home and then there’s already another tax in place to nail that equity.
At the same time, some of that equity is actually consumed by property tax increases making our homes less valuable than they would be without it. When the Independent Fiscal Office studied this issue they stated that the elimination of the property tax would actually add, on average, about 10% to home values when the homeowners actually wanted to sell their homes.
Would we sit idly by if, in their attempts to fill the budget gap, state legislators told us they were going to establish a state job assessment policy where the taxes on our income would no longer be based on our actual wages but on what some firm determined we should be earning. Let’s say you are earning $40,000 and are currently paying $1,228 in PIT taxes but this assessment system determined you should be earning $45,000 in that job so you taxes will now be based on the assessed value and not what you actually earn…in this case an additional $153.5?
Would we sit idly by if the same government for the same reason would tell us that from this point forward the sales tax will not be based on the actual selling price of the item we purchased but determined by some assessment firm? You want to purchase a new big screen TV at Christmas that’s on sale for $100 less than the suggested retail price. The normal selling price of that TV is $600 but you can now but it for $500 paying and additional 30 in taxes. Then when you get to the register you are told that the $500 Tv has actually been determined to be worth $800 and your sales tax, under the new assessment policy would not be $30 but $48. Now imagine that happening for every sales taxable item you purchase over the course of a year and think how much more ti would cost you. Would we think this was fair?
And yet this is exactly what is happening year after year with our homes!
Over the decades, Government has admitted that the property tax is inherently flawed and egregious. If they hadn’t we wouldn’t have seen so many flawed attempts to fix it. Every solution tried so far to fix the problem has failed.
The State Tax Equalization Board was created in 1947 to supposedly make the property tax fair. It failed. In fact, in 2008 a report on the Board was a scathing indictment of flawed formulas, inaccurate reporting and practices.
At the time Auditor General Jack Wagner announced his office found so many errors in the State Tax Equalization Board’s (STEB) revised property values for 2008 that it brought subsequent reports and the impact on government aid and property taxes into question.
Mr. Wagner said the errors’ impacting local school property taxes, which represent 60 to 70 percent of a Pennsylvanian’s tax load, were so bad that they would be impossible to calculate.
“What STEB influences is the school subsidy by state government to local school districts,” said Mr. Wagner. “The simple fact remains it should be right, it should be accurate, and we have no sense of confidence it is today.”
Mr. Wagner said unless the STEB, which has an annual operating budget of $1 million and a three-member board, corrects the information in the 2008 and 2009 reports, Gov. Tom Corbett should consider abolishing it and either contracting the market value assessment out to a private firm or integrating the agency into the state Department of Revenue.
Did they? No they didn’t.
Apparently the solution to that was simply to change the name of the board and making the website less transparent. The whole concept is unfair because it uses averages to determine a common level ratio. Those above the average will benefit, those below it pay more.
Realizing that property taxation was outpacing many taxpayers ability to pay, Act 1 was passed to place limitations on future tax increases. It was supposed to restore some level of local control by saying that when a school district wished to exceed the Act 1 limit it had to go before voter referendum. When it originated it contained 10 exemptions the school districts could use to avoid voter referendum and they certainly did make use of them. It was a failure. School districts applied using one of the 10 exemptions and in every case those exemptions were approved in rubber stamp format through the Department of Education.
Did they fix that?
Well, the fix, we were told, was to eliminate 7 of the exemptions.
It also failed. Roughly 1/3 of the school district annually still apply for and are rubber stamped in their approval using the three exemptions. Voters never get to decide because the school district never has to go to them for approval.
We’re talking about 160 to 200 school districts a year that do not have to turn to voter referendum because of the exemption. Its not always the same school districts so over a period of time the majority of the school districts can apply for and receive the exemption from voter referendum.
Over and over again the current auditor general has found questionable uses of tax payer moneys in some of our school districts. He makes recommendations but that’s all they are. Current law doesn’t require that those recommendations are followed. They can simply choose to ignore those recommendations.
An attempt was made to fix that this year in a bill introduced by Frank Ryan of the 101st District. Once in the Senate, the bill was amended so as to render it useless and now it will return to the House. Ryan has stated that, as a result of the amendments he will have to now vote against his own bill.
There was also the gambling fix where we told that we could see major reductions in our property taxes even to the point of elimination if we allowed legalized gambling into the Commonwealth. We were told we would see near elimination but that couldn’t have been further from the truth. The meager crumbs that fell from that table in the form of a reduction that was quickly eaten away by later real estate tax increases.
We’ve seen programs like Keystone Opportunity Zones where time limited exemptions are made to businesses. This was also a flawed concept no matter how well intended.
This gives an unfair advantage to the business receiving the exemption for a limited time period over other business in the area. Not only have that, but the taxes on everybody else had to increase to provide for the exemption to that business including increasing taxes on other competing business in the area. Can anyone really call that type of tax program fair.
The fact that we implemented Keystone Opportunity Zones was a clear admission to the fact that we have a serious problem with property taxation.
Do they work?
For every success story of the Keystone Opportunity Zone, there are a hundred stories of businesses that establish through the Keystone Opportunity Zone and once the exemption expires, they close the doors and move elsewhere. It fails because, ultimately, the temporary exemption no longer exists and the business simply can’t afford to stay open and pay the taxes.
The thing is that we already know that exempting those businesses from the property tax actually works in attracting new business to our communities. It stops working when the exemption expired. What makes it fail? The Property Tax.
Eliminating the property tax would see those businesses locating in Pennsylvania, creating jobs in our communities, which generate both PIT and SUT taxes along with other local taxes. They would then remain because the fear of the property tax returning is gone.
Eliminating the property tax for the same competing business would also remove the unfair advantage we see through the current system of Keystone Opportunity Zones since all businesses would be exempt. It eliminates the need for the inequity the Keystone Opportunity creates while also eliminating to need to pass the cost for property tax exemption on to homeowners and other businesses. It then generates fair market competition between the businesses.
Of course if you are large and powerful business you may not want competition so protecting the status quo, which forces many of the smaller businesses to look elsewhere, would benefit them.
At the root of the Keystone Opportunity Zones we also see a flawed approach to solving problems in Pennsylvania. The cost of implementing a Keystone Opportunity is not measured. We really don’t know ho much it costs to implement because we don’t keep track of those statistics so when a supporter of the Keystone Opportunity Zones tell us how much revenue these businesses generated, they leave out a very important aspect…how much it cost.
If 1 million is generated from a Keystone Opportunity we are to applaud and say, “job well done.” but in many cases where independent agents have studied the cost, we aren’t actually making money, we’re losing it because they cost more to implement and maintain than they produce. If property taxes were eliminated there would be no cost in making the entire state a Keystone Opportunity Zone because there would be no government agency involved in the process and no cost would be passed on to other taxpayers.
It preserves the intent of the Keystone Opportunity Zone without the cost to homeowners and other businesses. It does so in a way that is fair and equitable and no longer allows the state or local governments to manipulate power in picking winners and losers which might contribute to the reasons for some of the opposition as well.
As property taxation has become an unsustainable problem for many homeowners one of the solutions being floated it that we can ease the burden of the property tax (that doesn’t mean fix the inequities which can’t be fixed-it just means make the tax cheaper so we ignore the moral dilemma of the tax for a little longer) by taxing non-profits.
In order to be exempt from property taxation a non-profit must provide a service to our community. If we begin to tax the property of these non-profits we are going to limit their resources in the services they provide.
Supporters of taxing non-profits seem to especially like to point to taxing churches and they always roll out mega churches when they do so. It assumes that the mega church in the local area is rolling in funding functioning off the same false premise that property can measure wealth.
Besides for every large church, there are a hundred smaller churches, each struggling to pay their bills. You see as our tax burden increases our ability to contribute to charity is limited. The rising property taxes are already negatively hurting smaller churches and in a way, it’s the property tax which becomes a major contributing factor in giving falling off so they are already paying a price, though not directly.
I get that there are non-profits out there taking advantage of the tax environment. It’s not all of them though and its not even, in my observation, the majority of them.
Here again, even if you start taxing the property of non-profits, you haven’t fixed the inequity or unfairness of the tax. It doesn’t fix that which is inherently wrong with the tax to begin with.
All you’ve done is temporary found a new revenue source that may (or may not) actually lower the property taxes for everyone else for a very short period of time. In very short order any reduction you see will soon disappear as the property taxes continue to increase along their historically proven path.
The simple truth is that you cannot fix the property tax on our homes because it is inherently flawed. You cannot fix something that was broken at its inception. No matter how its spun, the property tax is wrong, both ethically and morally wrong. It is wrong because it’s never actually reflects an honest value of a home resulting in as much as 60% of the homeowners in the state paying more taxes on the estimated assessed value of their homes than their home is actually worth.
Tell me again, what other tax does that.
Imagine going to your doctor and being told that you have a fatal disease. The doctor then tells you that there’s a cure to the disease to make it go away completely but he’s not interested in that fix so he’s going to try a series of other things that won’t cure the disease but might make it easier to manage.
Would you go to another doctor?
Well that’s what’s happening with the property tax. Our problem is that we can’t go to another doctor because their isn’t one. Your tax collector is your tax collector and you do what they say or they take your home from you. End of story.
When it comes to the school property tax, some have chosen another doctor. They have issues with the public education system and they move their children out of the public schools into private schools. It doesn’t matter, the school property tax collectgor still comes knocking on your door.
Let’s translate that. You go to the store and purchase a new TV. You pay for the cost of that TV and the taxes associated with it. Then the tax collector shows up at your door and wants to levy another tax on you for a TV you didn’t purchase simply because they can. This is the TV they want you to pay taxes on and they have the authority to make you pay the taxes for that TV. Would their be an outcry?
Of course there would but that’s how the school property tax works and where is the outcry?
The sad thing here is that even defenders of the real estate property tax admit to the flaws. Deep down they know it is wrong but they defend it primarily because many of them benefit from it in some form or another. That benefit comes at the cost of many people losing their homes often for reasons totally out of their control; an illness, death, faltering economy where family sustaining jobs are harder to keep and find. Since the property tax is not rooted in ability to pay and the property tax outpaces the rate of inflation, it’s not really all that difficult of find yourself in a situation where you can no longer afford to keep up with the demands of the tax collector.
Even though your home may be paid in full, the property taxes can outpace your ability to pay resulting in something you are supposed to completely own being stripped from you. Once stripped from you, the value of your home is irrelevant to the auction block all that matters to the auction block is that property taxes are paid in full. Your home can be sold out from underneath you for pennies on the dollar to some profiteer who will then turn around and resell your home for a profit.
Homes sold on the sheriff auction block do not have a track record of being sold for the assessed value of the property. For good reason. They can’t. In fact, the majority of homeowners couldn’t sell their homes for the assessed value on their property even if they tried and yet we will be told that the assessed value is fair for purposes of taxation and a just reflection of our home values.
Adding insult to injury, if they resell that home for a lower price than the assessed price, the new buyer can now appeal the taxes on that property based on the selling price and get a lower tax rate on the same home from which you were evicted. The new owner could be living in the very same home that you were forced to leave and then pay lower taxes than you ever could. Tell me how that is not wrong!
The whole premise of the property tax is based upon a lie propped up by system that has created programs that fail to do what they are supposed to while costing us millions more in the process. The lie is that the property tax can somehow be made fair. It cannot.
Homeowners did not create the current inequities we see in school funding; those in place to oversee and levy the tax created them. Even though we did not create it, we are seen as being accountable to pay for it through an inherently flawed system of taxation.
The current unfunded debt of the pension system had nothing to do with homeowners. It isn’t like we had the opportunity to actually vote on it. We did not create it. The Public sector through our legislators created it. Even though we did not create it, we are seen as the ones accountable to pay for it through an inherently flawed system of taxation.
It has been said that insanity is “doing the same thing over and over again and expecting different results”. That is what our opponents want the rest of us to accept: the insanity of protecting the status quo, to reapply the same fixes that never fix; to maintain the same system that can easily be proven to be inherently wrong.
They can tell us that property taxation provides a stable revenue stream for the tax collector. They cannot tell you that the property tax creates any sense of stability for the person who has to pay for it. If they have to leave that out of the equation and they realize the instability it creates for the tax payer than the entire premise of stability is framed around the same lie that props up the property tax. That somehow it can be fair and equally applied in relation to the requirements of the Commonwealth Constitution which states that (article 8, Section 1) All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax. They aren’t. The millage rates may be the same in any territorial district but because the mills are applied to the arbitrarily determined value that doesn’t not honestly reflect actual home value the taxes can’t be made to conform to uniformity. It’s simply impossible!
They can tell you a lot of things in their attempts to justify the property tax but the one thing they can’t tell you is that it is fair or that it is equitable. That makes any justification of the property tax the same lie that props up the property tax to begin with.
The property is wrong by every measure. The property tax can never be made right. When that happens there is only one justifiable course of action. The complete and total elimination of the thing that is wrong! Anything else is just an excuse.
Thomas Jefferson wrote, in our Declaration of Independence that ‘Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”
The cause for elimination is neither light nor transient. While in the past we have been disposed to suffer as long as the property tax was sufferable, for many we are already way past that point in time, for others it is approaching. It is long past time to end this train of abuses. It is time to do the right thing because its the right thing to do.
Eliminate the property tax and replace it with a system that is both fair and equitable.
Only one bill actually accomplishes this and that bill is HB/SB 76.