Mike's Memo

Week of March 10, 2008

A key component of my "Promise to Pennsylvania" is to eliminate property taxes. This is an aggressive goal, mainly because of the task of finding appropriate replacement revenues needed to eliminate these onerous taxes. I know most homeowners find escalating school property taxes to be their biggest headache. That's why I believe is it imperative we enact a plan to eliminate these taxes once and for all.

To totally eliminate property taxes, approximately $16 billion ($10 billion for school property taxes and $6 billion for municipal property taxes) in replacement revenues would be needed. These replacement revenues could come from four other tax sources: Personal Income Tax (PIT); Earned Income Tax (EIT); Sales and Use Tax; or other (new) tax.

When I took office, I signed a "no tax pledge," so I am unable to support the creation of any new taxes to replace local property taxes.

The last time the legislature used this approach, was in the 1960's, with the creation of Act 511, known more commonly as "nuisance taxes."

While I do not like that I do not like any taxes, I am particularly troubled by taxes on income, because I don't believe we should tax people's productivity; that's why I do not favor the PIT or EIT to replace property taxes.

I believe the best approach to generate replacement revenues for property taxes is the sales tax. By using the sales tax, people have increased control over the tax; more people pay the sales taxes than property taxes; and sales tax is paid with each purchase, as opposed to larger, annual bills, like property taxes.

There are two ways the sales tax can be used to replace property taxes. One option is to expand the base to include items not presently taxed (such as a tax on food, clothing, prescriptions, candy and gum, personal hygiene products, newspapers, magazines, and amusements, just to name a few). Click here for a more detailed list of items that might be taxed in order to eliminate school property taxes.

To see how you would fair under this option, look at the chart below and compare what you now pay in property taxes to what you would need to spend under an expanded sales tax.

Another way the sales tax can be used to replace property tax revenues is to increase the rate from the current 6 percent to a higher rate. Each 1 percent increase in the sales tax nets approximately $1.4 billion.

Perhaps the most taxed about elimination plan offered to date is House Bill 1275, sponsored by Representative Sam Rohrer. Its basic premise is to expand the base of the sales tax, but unfortunately, the Rohrer plan recently failed to pass in the House. House Bill 1275 was a far-reaching plan that would have eliminated property taxes over five years. The plan called for the elimination of school taxes ($10 Billion); municipal property taxes ($6 Billion); and assumed school debts, with a total estimated impact of $25 billion.

Under Rohrer's plan, replacement revenues would come from the sales tax, along with a .85 percent change in the PIT (from 3.07 to 3.92 percent); a 6 percent school hotel occupancy tax; and a .5 percent realty transfer tax. These changes would have been implemented to exempt food and clothing from taxes.

With the defeat of Rohrer's plan in the House, I want to develop a simpler, more focused approach that doesn’t create new taxes, but just expands the base of the sales tax.

I would like to get your thoughts on this issue. On my website is a brief survey about expanding the sales tax in exchange for elimination of school property taxes.