Property Taxes

Property Taxes

A VEXING PROBLEM, A PRACTICAL SOLUTION

Jim Cox

For more than thirty years, the Pennsylvania General Assembly has grappled with the problem of relentlessly rising school property taxes and the damage caused by this inequitable levy with no effective result. Why has it been so difficult to find a resolution? In most instances an incomplete understanding of the depth and breadth of the problem has led to ineffective solutions.

In its simplest form, the property tax is a throwback to the Middle Ages when only landowners had the wherewithal to support their governments. This system was imported to Pennsylvania in the early 1800’s during a time when we were an agrarian society and most people earned their living from the land. Since more land holdings generally equaled greater prosperity, the property tax was a reasonable proxy for wealth and landowners were taxed accordingly when there was no other method for the government to determine income.

In today’s society homesteads are where families live; very few generate income. So why, then, do we still tax homes as if they are producers of wealth? In what way is it equitable to tax a home of 2000 square feet at a different level from one that is 1200 square feet? A basic precept of fair taxation is that the tax should reflect a person’s ability to pay. Pennsylvania’s property tax is an antiquated, subjective system that has outlived its usefulness, a system that does not account in any manner for a person’s income or circumstances.

Homeowners of all ages are facing extreme pressure because of school property taxes that relentlessly rise at a rate of more than three times that of inflation. Research by grassroots taxpayer groups has found that as many as ten thousand Pennsylvanians lose their homes to property tax sheriff’s sales each year and that total does not include those who sell their home, sometimes at a loss, to avoid losing their equity through such an event.

Unfortunately, the damage caused to homeowners is only the tip of the property tax iceberg. Eighty percent of non-government jobs in Pennsylvania are provided by small businesses. As the second largest fixed expense for these job creators, the property tax, through its uncertain nature, discourages small business expansion and hinders job growth.

On February 29, 2012, the Tax Foundation released a study entitled “Location Matters: A Comparative Analysis of State Tax Costs on Business,” which examined how business friendly each state was. Pennsylvania was ranked number forty-nine of fifty for new businesses and dead last, at number fifty, for mature, established businesses. Not only is Pennsylvania’s tax burden, which includes the property tax, discouraging new businesses and the jobs they create from locating here, it is also driving existing businesses and jobs from Pennsylvania.

Read the full article in February’s issue of Transactions. Aren’t a subscriber? Visit the Transactions page on this website or call PACB at 717-231-7447 to start receiving the magazine.