Politically Incorrect: Public Education Financing Flawed

The "Property Tax Independence Act" sponsored by Rep. Jim Cox (R-Berks) may be a solution to our public education woes.

These days, the word “crisis” has become a tedious cliché, much overused and abused by those for whom every problem becomes a looming catastrophe. But the unparalleled challenges now confronting the financing of Pennsylvania’s public education system do comprise a genuine crisis, one that if left unsolved threatens to transform Pennsylvania—educationally, economically, culturally, and even socially—into a permanent backwater.

Across the Commonwealth dedicated teachers are being furloughed, vital programs are being curtailed, entire schools are being shut down, and an entire generation of students may be losing their access to a quality education. That’s just the good news.

Worse is that the furloughs, the cutting, and the closings are all going to accelerate in the coming months and years, bringing further assaults upon Pennsylvania’s public education system. The consequent damage to the quality of education, the future of our children, and their ability to compete in the emergent global economy cannot be exaggerated.

And who, or what monster, shall we blame for this monstrous calamity? Are evil teachers unions behind this looming disaster, or perhaps corrupt politicians, or even grasping school boards? No. Neither these nor any of the “usual suspects” can take the fall for this one. Our financial crisis is not due to greedy teachers, incompetent administrators, angry taxpayers, manipulating political parties, or even super PACs.

In fact, the villain behind our educational woes isn’t even a person or institution; it’s a tax that most of us are all too familiar with: the real estate property tax, better known as simply the “property tax.”

What about the simple property tax is so atrocious, so flawed, and so defective that we ascribe to it most of the contemporary problems of financing public education? That’s a good question, one to which entire libraries are devoted.

The (very) short answer produced by legions of public finance experts is that the property tax is grotesquely unsuited to modern times.

It is unfair (i.e., regressive), expensive to administer, difficult to assess accurately, disconnected from the modern economy, and politically repugnant to most taxpayers. These defects and many more are the bitter fruits of the much-hated property tax.

Of all America’s major taxes, including the income and sales taxes, the property tax is the worst by any measure you care to use.

But bad as the property tax is, its egregious faults are only part of the problem. Even worse is that we are using this most flawed of taxes to finance perhaps the most important function of government: education.

We are trying to educate our children on the back of a creaky 19th-century antique that barely did the job then, faltered badly in the 20th century, and is now failing spectacularly as we move through the second decade of the 21st.

Must we watch helplessly as our proud tradition of public education withers away, the victim of inert political leadership and ossified public policies? Absolutely not!

Two things seem eminently sensible.

First, we should adopt expeditiously a tax system that finances 21st-century education with a 21st-century tax.

One of the most promising concepts being discussed now is Representative Jim Cox’s (R-Berks) bill known as the “Property Tax Independence Act,” which would replace the school property tax by increasing the state’s personal income tax from 3.07% to 4%, and expanding and increasing the state’s sales and use tax from 6% to 7%.

Second, we should avoid throwing out the baby with the bath water and recognize that the property tax—for all its limitations—is best fitted to financing Pennsylvania local government.

Originally, property tax revenues were used almost exclusively to finance local government functions like public safety and public health. Only over time was the property tax base hijacked to support more and more local education, so that now as much as 80% goes to the schools.

We should stop using the property tax to finance schools and instead using it only to support non-school local government expenditures. This is where the property tax works best.

Neither of these steps requires overall increased taxes. Cox’s bill and others proposed over the years would not raise taxes but rather would shift tax burdens from the property tax to a tax more suited to modern times and the needs of public education.

Nevertheless, any legislation that envisions tax changes, even tax shifting, will be controversial. Indeed, earlier efforts dating back three decades to bring tax reform to Pennsylvania were rife with dissension.

But let’s not kid ourselves. The choice is not between change and no change. Change, almost all of it bad, is happening across the state almost every day as Pennsylvania’s school districts adapt to the new realities imposed by relying on the property tax to finance education.

The real choice is between having a choice about the future of state public education and having that choice imposed upon us by doing nothing.

May 29th, 2012 | Posted in Front Page Stories, Guest Commentary, Top Stories | 9 Comments

9 thoughts on “Politically Incorrect: Public Education Financing Flawed”

  1. charles urban says:

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  2. How can any tax be more regressive than the sales tax? How can any income tax be less regressive than the flat income tax Pennsylvania imposes? The sales tax rate does not compute, as it will tax services and goods that people will border hop to procure. Delaware’s 0% sales tax anyone?

    HB 1776 also lets bigger businesses off the hook, while shifting tax incidence to small business (beauty parlors, restaurants, funeral homes, accountants, etc. that can’t escape the new sales and use subjects of tax.

    If school expenses are too high, then cut expenses. What tax is used is not as relevant as the expense side.

    Moving to sales and income taxes would unfairly burden the poor, the elderly, and working families just starting out. If property taxes are so bad, why do states that use it more than other taxes do so well economically (Texas, New Hampshire, Virginia, etc.) . The property tax can be fixed not dumped, and anti-capital measures like sales and income taxes avoided.

    Granting the State of Pennsylvania decision making powers over local decisions is not the way to go; I am surprised that supposed free-market advocates want to tax people’s work and capital, and at the state level at that. I wrote a longer piece on the subject: http://www.urbantoolsconsult.org/blog/2012/04/20/Eliminating-the-property-tax-It-must-not-happen-but-well-see-what-happens.aspx

  3. Local control has been, and still is, to many a bedrock principle of conservative fiscal common sense. Shifting taxes is not a solution; it is pandering to one small group who are hurting and complaining. The problem is not taxation; the problem is spending. The Union Financed Republican Leadership of PileggiCorman and SmithTurzai which controls House and Senate rank and file had an opportunity to address this in ACT 25 OF 2011 which closed seven of ten loopholes in a requirement for a Tax Referendum to raise school property taxes.
    Those three loopholes mean that property owner will be hammered with ever escalating taxes. The focus needs to be on school spending and on controlling the ability of the bureaucracy and unions to hammer the property owner

    Centralizing more and more fiscal decisions in Harrisburg while increasing the income tax on people who work save and invest, the most productive, is counterproductive to a higher standard of living for everyone.

    The Liberty Index http://www.libertyindex.com scored Act 25 of 2011 as Tier 3 For Liberty http://www.libertyindex.com/actsDetails.asp?ActID=4242

    The Liberty Index scores Act 25 of 2011 TIER 3 FOR LIBERTY – because it is a big step in the right direction of giving taxpayers more control over public sector, union driven bureaucratic spending. There is much to be done to reduce school spending that does not lead to improved student learning performance.

    A “yea” vote will add 50 points to Legislator”™s or the Governor”™s grade and a “nay” vote will subtract 50 points from the grade.

  4. Harish says:

    Pass HB 1776 NOW!

  5. PAPol says:

    As is the norm whenever this legislation is discussed, the self-professed experts are only too willing to comment with criticisms that have no basis in fact.

    Alan, HB 1776 mandates that all school districts be reimbursed dollar-for-dollar for all school property taxes eliminated. There is no redistribution of wealth and no school district loses anything.

    This legislation was developed in concert with the Pennsylvania Coalition of Taxpayer Associations, an affiliation of 72 grassroots taxpayer groups from across the state that acted as a citizen watchdog. From the earliest discussions of this legislation in November 2010, the PCTA has been a full partner in the drafting of the Property Tax Independence Act. House Bill 1776 is truly a collaborative effort between lawmakers and the taxpayers who support it and, because of this collaboration, has gained widespread acceptance by residents from across the Commonwealth.

    Sean Ryan, you have it wrong. What you didn’t mention is that for a large majority of Pennsylvania school districts debt service is less than ten percent of their total budget. This means that almost all Pennsylvania homeowners will see an immediate property tax reduction of ninety percent or better until the existing debt is satisfied, then the remainder of the property tax will disappear completely. Only the amount of property tax necessary to service the debt as of December 31, 2011 will be allowed; further debt financed by property taxes is forbidden and property taxes cannot be raised beyond what is necessary for current debt service.

    Marc Stier, we have two choices. Eliminate the school property tax now or lose the battle by insisting on equalized per-pupil funding, a provision that would certainly kill the legislation. The situation is beyond critical. In 2004 school property taxes statewide were about $8 billion. Now, only eight years later, that total has ballooned to $12.7 billion, more than a 50% increase. Do you believe we have the time to waste on issues other than elimination? Your idea is a battle for another day.

    Dr. Madonna and Dr. Young have hit the nail squarely on the head. The current education finance system is broken beyond repair and must be fixed now.

    Please learn the facts before commenting with what you THINK you know. The details are at http://www.ptcc.us.

  6. There are a wide range of financing options available for education. Looking at some national models of financing in Europe might be a good idea for the States to do since there might be some practical and useful things that could be learned from societies that spend less per student than the USA does but get better results.

  7. File this one under “the devil is in the details.” This is a good idea in general, one that liberals might support. But look at the details The legislation calls for statewide taxes with the money redistributed NOT equally on a per student basis to each school district. Rather it will gives each district the amount of money it spend THIS year.

    What that means is (1) People in Philadelphia will pay state taxes so that kids in Lower Merion have twice as much money spent on them as our kids.

    (2) We will never escape from the inequality that currently exists in our current property tax funded schools.

    This is a right wing fraud that redistributes money from poor to rich.

  8. sean ryan says:

    This bill doesn’t eliminate property taxes by districts. They can still levy a property tax for debt service (which will rapidly expand because of reduced funding from the state).
    Besides, please name one circumstance when sending more money to Harrisburg has ever been a good Idea.

  9. Alan says:

    Agreed but then Harrisburg would have a big pot of money and allocate as they wished. Districts with good schools would be ruined with the shift. We would achieve mediocraty across the board. Districts with huge retail would see the sales tax revenue reallocated. Districts would see Income tax revenue reallocated elsewhere.
    The reality is that these guys can’t be trusted. Witness the theme- slots were supposed to be for education & property tax relief but they siphoned off most of the money for economic development – pork barel projects. Then table games came and all revenue went to the general fund How about property taxes?
    Trust not the Legislature!

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