Independence? Not Likely
[The following article is reprinted with permission from the Summer
2012 Georgist Journal, edited by Lindy Davies. Reprinted from
GroundSwell, November-December 2012]
At the recent CGO conference, I was to participate in a debate
with advocates of a Property Tax Independence Act (PTIA).
This proposed constitutional amendment in Pennsylvania has also been
dubbed House Bill 1776. As it turned out, none of the PTIA advocates
showed up, but here are a few of the things I wanted to tell them.
Moves to eliminate the property tax have been common in recent
decades in Pennsylvania and elsewhere. Some tax relief bills and
constitutional amendments have been passed, with results ranging
from mixed to disastrous. Although California's Proposition 13 still
has passionate defenders, their tone has become increasingly
Urban Tools has always researched and helped implement programs
that reduce the pressures of taxation on all strata of society, from
poor to prosperous. We believe that a functioning market system
augmented by a stable public revenue system is the best option for
government, particularly state and local governments, as federal aid
Property Taxes Mean Local Control
One of the less-discussed facts about property taxes is that they
are local. People can vote to raise or lower them. This April, the
town of Medford, NJ voted a higher local levy above the set tax cap.
A Pennsylvania state legislator or county commissioner from an area
close to a state border like Maryland's is seeing growth from
inflow, and greatly increased spending, contrary to decades of
tradition. We shouldn't be surprised. Yet, most Pennsylvanians live
in rural areas with one big town usually serving as the county seat.
It might surprise a citizen of, say, Blair County that their
property tax burden is in the bottom third of the nation's counties.
Yet, in Blair, Elk, Cameron and many other counties in Pennsylvania,
the property tax is a bargain.
Eliminating the property tax would launch these affordable places
into uncertainty. Pennsylvania's unwieldy state equalization system
desperately needs reforming. And, the state's overall tax system has
much to do with its lack of competitiveness. The Pennsylvania income
tax is flat and wage-based, burdening even the poorest
Pennsylvanians. There is also a local earned income tax , again a
wage tax, paid in addition to the state levy.
Are property taxes driving people out of the state, as PTIA
advocates claim? There are a lot of reasons why people are leaving
Pennsylvania, but it's unlikely that property taxe are one of them.
It is true that New Jersey has high property taxes, which
contribute, along with very high income, sales, and corporate taxes,
to real distress. However, when one looks nationally at states that
rely on one tax more than others, clear differences appear. Several
states that dodged the Great Recession -- Texas, New Hampshire,
Nebraska -- have relatively high property taxes coupled with minimal
to no income tax. States that have been historically poor, such as
New Mexico, Louisiana, and Mississippi, have relied to a far greater
degree on sales taxes. Such states have lousy schools, lousy health
and are not great places to live.
Despite all these facts, PTIA advocates blame the property tax for
Pennsylvania's troubles, ignoring other far more harmful taxes. The
solution it offers is increased sales taxes and increased income
taxes! The PTIA bill would have to raise about $24 billion a year to
replace the school property tax and Pennsylvania's sales tax rate is
already 6%. The sales tax couldn't raise all the needed revenue
without becoming absurdly burdensome, so the state income tax would
have to rise as well up to the high levels of states like
Connecticut, California and Ohio.
North Dakota Dodges a Bullet?
The sponsors of HB 1776 pointed to one state that was considering
eliminating its property tax: North Dakota, one of the most sparsely
populated states in the USA. Some were tempted by this idea because
the state s coffers are currently swollen with revenues from gas,
oil and other resources, but that won't last forever. Fortunately
for them, 76% of North Dakota voters just rejected the abolition of
property tax. Still, perhaps the USA would have gained an overall
benefit, had North Dakota made this mistake. In our federal system,
the states are indeed the laboratories of future policy.
True, the property tax, as constructed, is a lousy tax. It falls
disproportionately on what people do with their own dimes and their
own time. The property tax is actually two taxes: a tax on land
values and a tax on building values. The original meaning of Commonwealth
envisioned a place where people can make a living, succeed, be
happy, and be legally secure in what they have earned. One part of
the property tax, the tax on buildings, is indeed corrosive to
prosperity and freedom. As we all know, when you fix up a house, or
build one from scratch, your tax liability increases significantly.
The tax on land values is the only tax that collects what a
That's why Pennsylvania has the Keystone opportunity zone, which
is a confused, privileged and preferential way to get out from under
a bad tax system. We'd suggest that instead of trading one bad tax
for a basket of bad taxes, Pennsylvania should expand on its use of
the land value tax, to encourage freedom and prosperity, as do
Australia, Singapore and Hong Kong. The land value tax is already
used in 20 cities and school districts in the state of Pennsylvania.
In some cities annual property taxes have been reduced for some
homeowners by up to 80%, without resorting to other taxes! Instead,
revenue is provided by land value, an immobile source of revenue
which is created by local effort, services and community.