Our very own Jim Barr is quoted in this article.
Rachel Weaver
Staff Writer
Wednesday, March 14, 2007
Renters will pay more under Act 1, and there's no guarantee that all homeowners will pay less under the state's broadest attempt at tax reform in a decade.
Voters in the May 15 primary will decide whether they want to shift taxes in their district -- to reduce property taxes, some people would see their income tax spike. Most school districts -- more than 450 of 501 -- favor increasing the earned income tax at a rate of 1.05 percent or less, instead of a personal income tax.
Either way, school districts aren't supposed to collect more money -- only shift who pays, if voters support it.
"Act 1 is not school funding," said Scott Shewell, director of public relations for the Pennsylvania School Boards Association, based in Mechanicsburg. "It's a property tax relief bill. There is no benefit to the school board if the referendum is passed and no drawback if it isn't."
For decades, Pennsyl-vania legislators have argued over the best way to collect taxes, and how to reduce property taxes. Gov. Ed Rendell signed the Taxpayer Relief Act in June 2006 to give public school districts the means to lower property taxes, especially senior citizens, via funding provided by gaming revenue. The last major attempt at tax reform came in 1998, Act 50, with measures so complex that most school districts disregarded it.
This time around, school district leaders must offer voters the option of shifting taxes.
"Educating voters about what the question is about is our biggest concern," Shewell said.
"Someone who doesn't understand will read the first sentence asking 'Do you want to raise the income tax to supplement a decrease in property tax' and think the school district is asking them if they want to raise taxes."
And some worry that in attempting to shift the tax burden, the legislation creates new problems.
"The state has basically pitted a class warfare, working people versus retired people," said Kevin Fischer, president of the Baldwin-Whitehall school board, which is recommending a 1 percent increase in earned income tax. "If I were retired and not earning income, I would be voting 'yes.' Why wouldn't I want $500 in my pocket and be paying less in taxes?
"As a wage earner, I'm voting 'no.' Why do I want additional wage taxes?"
Winners and Losers
Renters will lose out under the tax-shifting plan.
No matter which tax gets the OK, people with leases pay more.
"Anyone with a paycheck will start chipping in," said Mike Storm, assistant press secretary with the state Department of Education. "Everyone will be shouldering the same burden."
Shewell calls Act 1's effect on renters a "triple whammy."
"They have the most to lose under Act 1," he said. "They're getting no property tax relief. Their earned income tax will go up, if that's approved. And most landlords calculate the amount of property tax into the cost of rent, so many will see increases in rent."
Dual-income families also could pay more. If an earned income tax is raised, anyone who works will see the tax go up. Property tax reduction, however, is limited to one homestead exemption per property; this amount varies from district to district.
"Even if you are a single-wage earner, you will see your property tax decrease but your income tax could go up," Shewell said. "If you make right around the average (income), it's not a great deal for net tax relief."
Senior citizens who still work, but who do not own a home also could lose out if voters support increasing the income tax -- because as renters, they would not qualify for the homestead exemption, yet they would see tax on their income go up. Some lower-income seniors would see at least a partial savings by the expansion of the property tax and rent rebate program - which gives up to $650 per year, depending on income.
The earned income tax option is most beneficial to seniors. It includes tax on compensation and net profits. Personal income tax includes tax on compensation, net profits and other kinds of income, such as interest and dividends, which would hurt seniors who depend on investment income.
Some residents are already frustrated with Act 1.
"The whole thing is a sham," said Shirley Turnage, who's lived in the Franklin Regional School District for 60 years. "It was thrown together. There's no explanation of how taxes will be collected and who will be collecting them."
For Turnage, who is "old enough to collect Social Security," Franklin Regional's decision to reject the local citizens tax commission recommendation of a .7 percent personal income tax was a triumph. After seniors like Turnage spoke at several board meetings, the board opted in favor of an increased earned income tax question.
"As senior citizens, some of us scrimp and save to make life easier in retirement," she said.
Under the earned income tax plan, Turnage said, the people who use the district's services are the ones who pay -- working parents with children who likely get annual raises.
Turnage is not optimistic about gaming revenues offsetting a drop in property taxes, as the governor has said.
"We're never going to see anything out of it," she said.
"Act 1 is frivolous," said Jim Barr of West View, which is served by the North Hills School District. "There's no real tax relief. It's just something legislators so to make it look like they're doing something."
Carlynton School District is proposing a 1.4 percent personal income tax, though resident Eugene Dwyer doesn't see the point of changing the system.
"If I had to vote right now, I would want to maintain the present structure and forgo what's coming from gambling," Dwyer said.
Savings from Slots
The state Department of Education reports gaming will generate $1 billion each year for local property tax relief, though it is not yet certain when taxpayers will see their share of that relief.
"Once more revenue comes in from slot parlors and it's replaced in the (Pennsyl-vania) lottery, then school districts can cut property taxes further," Storm said.
At the latest, taxpayers will see relief from gambling funds by next year, said Steve Kniley, press secretary for the Department of Revenue.
The state property tax and rent rebate program expanded this year to include more senior citizens, disabled adults and widowers over age 50. The income limit raised from $15,000 to $35,000. Eligible taxpayers are seeing up to $650 in rebates. Enrollment in the program jumped from 300,000 last year to 700,000 this year, Kniley said. This program is different from the homestead exemption, which applies only to property taxes.
Rendell's budget proposal includes using part of a sales tax increase for property tax relief, which the public will see this summer if the budget is adopted. Knively estimates the average household will see $190 in savings.
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