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Property Tax Elimination

The discussion that has surrounded Property Tax Relief in Pennsylvania has been around for a long time. Many capital projects have had the tag line of bringing relief, but few have had any marginal impact. Now a major hurdle has been passed as the PA Senate Finance Committee has approved a measure that would replace all property taxes – about $13 billion – with an increase to both the state sales tax and earned income tax. The state sales tax would be raised from 6 to 7 percent. The state earned income tax would be raised from 3.07 to 4.34.

Who wins and who loses?

Winner: If this change takes place, one could argue that all of Pennsylvania wins.  Why?  For one, it’s simpler. Property taxes are based on millage. One mill equals $1 for each $1000 of value on owned property. Your mills come from 3 governing bodies – your county, your school district and your municipality, township or city. In addition, the millage is multiplied against the assessed value of your property and when your assessment changes, it’s never easy. The comparison of properties is a very subjective science at best. Besides being simpler, this process could accelerate the time for our tax dollars to reach their intended recipients.

Loser: Renters. They’d pay higher taxes without receiving any of the benefits. Of course, landlords could lower the rent by the amount the landlord saves on property taxes. We’ll check back on that one later.

Push: Businesses – maybe. Sales tax increases are never good for retail or businesses near the border. However, the ‘found’ money each month not spent on taxes would either be saved or spent. Here’s betting that the extra money not used to pay down some bills would be spent. So businesses may actually see an increase.

Winner: Actually the big winner is the home owner and their communities. The great American dream in PA is actually a drain – tax payments as a percentage of monthly mortgage payments have increased to where in some cases it’s approaching the principal and interest. For the elderly, even having your home paid off is a strain. There is a penalty for those that want to improve their property. Their assessments may increase and for the rest of the time they are in their home, they will pay higher taxes. Removal of property taxes would promote home improvement, pride in the community and increase home values. Home buyers buy location. It’s the law of real estate.

There will always be winners and losers. In the long run, I believe the migration would benefit our residents. It re-distributes the money faster, it promotes home buying in our state and, because it’s 2 simple numbers, is much easier for us to determine the success of those that govern our finances.

Mark Schuster, Partner

September 22, 2014

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