Tuesday, April 3, 2012

HB 1776: Legislation to eliminate property taxes

According to a review of state between 2004 - 2009, Pennsylvania has the 16th highest property taxes in the nation.  Property taxes are of critical importance to your school district, municipal and county governments; indeed, they are usually the main funding source.  Opponents of property taxes have long argued that the taxes are inequitable as they do not tax someone based on what they spend or can afford, but on the property that they now own.  Proposed legislation in Harrisburg would change that.

HB 1776, or the Property Tax Independence Act, would eliminate property taxes in Pennsylvania.  To make up for that revenue, income tax in PA would rise from 3.07% to 4%, and the sales tax would increase from 6% to 7%.  Sales tax loopholes would be closed on some food items and medications.

Supporters of the legislation say that money not spent on property tax could then be used to purchase items and thus create more businesses and jobs.  Given that property taxes tend to be highest in urban areas, this could be a boon to urban redevelopment as well.  Opponents of the legislation question whether or not it would still give governments enough funding to operate.

This legislation has NOT been endorsed or opposed by The Chamber, but if passed it would absolutely have a huge impact on taxpayers and businesses.  What are your thoughts?

1 comment:

Jon Geeting said...

I'm generally supportive of this, but I wish they would clarify what they mean by "property taxes." First of all, it's real estate taxes, and second of all, real estate taxes are really taxing two things: land and structures.

The tax on structures is horrible. You're penalizing people for improving their property. If people spend money on making their buildings more attractive, or add productive capacity, they pay more. The incentive is clear: don't improve your property.

Land taxes, on the other hand, are truly excellent from the perspective of economic efficiency. You can't make less land, after all. What's more, taxing land is pro-growth. It drives speculators out of the market by essentially taxing the act of *waiting to build*. It provides a strong incentive for developers to develop land to the highest and best use.

Allentown instituted a two-rate tax on land and buildings in 1997, and land is now taxed at 5 times the rate for building. This has been credited for an increase in building permits in the following years, as people built on vacant lots. Current leaders in Allentown would do well to fund more of the city's public services with the land tax, and reduce taxes on work and property improvements. This would lead to more intense development in the NIZ.

My hope is that in doing away with "property" taxes, Harrisburg politicians retain the option for cities to tax land, even if they can't tax buildings.