IssuesPA

March 1 2004

How would proposed property tax relief proposals impact different taxpayers: renters, homeowners, high, middle and low income? IssuesPA takes a closer look.

(March 2004) The legislature and the Governor continue to debate the merits and pitfalls of new gambling revenue as the primary source of funds for property tax relief. Missing from the debate is the impact of the tax relief proposals on different types of taxpayers.

IssuesPA examined the impact of House Bill 113 PN 2822, one of several measures before the legislature, on four types of working households in different parts of the state: low-income renters, middle-income renters, middle-income homeowners, and high-income homeowners. What are the findings? Overall, renters lose. Generally, homeowners and retirees win. And, of course, some benefit more than others.

What follows are estimated overall state and local tax relief - or in some cases, tax increases - for typical families of four with earned incomes of $20,000, $40,000, and $100,000 in 12 locations statewide. The analysis projects the impact on state and local taxes paid based on average projections. Actual tax relief per household would vary.

Pending property tax relief proposals share common goals of shifting part of the local school tax burden from property tax to a local income tax and using revenues from expanded legalized gambling to provide even greater property tax relief. In general, these proposals could impact taxpayers three ways:

  • An increase in local earned income taxes.
  • A decrease in school district property taxes.
  • In Philadelphia, a decrease in the city wage tax for residents and commuters.

 

Meanwhile, check out this table for the impact on different taxpayers.

So who wins? Who loses?

Most working renters lose. Using state and local taxes paid, it's clear most working renters lose with this plan. They wouldn't benefit from the property tax relief and would pay more taxes because of a higher local earned income tax (unless they live or work in Philadelphia). The table shows the impact on working renters in various communities throughout Pennsylvania. In this sample, renters would face an increase in their total state and local taxes ranging from less than 1% to as much as 2.3%.

Philadelphia-area renters who work in the city win. Because relief would focus on the wage tax and not property taxes, working renters who live in Philadelphia - or those who work in Philadelphia but live elsewhere - would benefit from a wage tax reduction. Renters working in Philadelphia would see a decrease in their state and local taxes - as much as 9% for low-income Philadelphia residents.

Homeowners win (except in Philadelphia, where taxpayers will see a wage tax reduction). Because the proposal would provide property tax relief to homeowners in most parts of the state, homeowners would win big under this plan. In the table, homeowners could realize tax relief as much as 9.73% of their state and local taxes.

Working middle-income homeowners benefit more than high-income homeowners. Property tax relief is greater as a percentage of income for middle-income homeowners than for high-income homeowners because it's administered through a homestead exemption, meaning relief in dollars per homestead is the same for all homeowners within a school district, regardless of assessed property value or homeowner income.

In many cases, the total tax relief is greater for typical working middle-income homeowners than high-income homeowners - both as a percent of income and dollar-for-dollar because the increase in local earned income tax offsets more of the property tax relief for high income homeowners (except for those who work in Philadelphia - who get wage tax relief proportionate to their income).

Retirees win. Although not tested in this analysis, retirees generally benefit from the proposals more than working Pennsylvanians. Retirees who own their own homes would get property tax relief (unless they live in Philadelphia). At the same time, both renters and property owners who are retired wouldn't have to pay additional income taxes on eligible retirement income.

 

Other considerations?

In December, legislators approved an increase in the state personal income tax. For many, the plan was to offset the increase in the state income tax with property tax relief. When the already-enacted tax increase is factored into this analysis, how do the results change?

For many high-income homeowners, property tax relief combined with the state personal income tax and local earned income tax results in higher state and local taxes. Middle income homeowners still realize overall state and local tax relief in most cases because, dollar for dollar, they get more in property tax relief (except if they live in Philadelphia) than the increase in state or local income taxes.

For some taxpayers, the state personal income tax has little impact. For example, many low-income workers - whether renters or homeowners - are exempt from all or a portion of the state personal income.