IssuesPA

May 1 2003

Despite a considerable number of past attempts, interest in tax reform remains high.

(May 2003) Every Governor since Raymond P. Shafer has considered or attempted some form of tax reform, yet little has really changed. What’s been done?

In 1989, a complex plan to drastically change Pennsylvania’s local tax structure suffered an overwhelming statewide referendum defeat.

In 1998, a new law focusing on school districts (Act 50) permitted increases in the earned income tax in exchange for reductions in nuisance taxes and property taxes. Yet only 3 school districts adopted Act 50’s options due to required referendums for future tax increase proposals.

Still, there’s considerable interest in tax reform in Pennsylvania. Why? Carnegie Mellon Professor Robert Strauss offered these reasons:

  • Property taxes have grown faster than personal income in key regions.
  • While per pupil school spending - and property taxes - have increased, outcomes haven’t.
  • School-age population has declined and the older population has increased.
  • Residential real estate values have grown faster than commercial real estate values.
  • Pennsylvania has a low quality of property assessments.

 

The tax quagmire is perhaps most acute in older communities. When economic activity moves from an aging city or borough to a growing suburban township, taxes leave but service needs don’t. Rather, the needs often multiply while the municipality’s population becomes increasingly unable to pay. Substituting one kind of tax for another is of little use when there’s no tax base left.

The question facing state policymakers:

What changes should be proposed in Pennsylvania’s local tax structure? What would you do differently from previous attempts at reform?

Revised May 2003