The Independent Fiscal Office is out with an analysis of HB1776 – the bill that would replace school property taxes with increases in the personal income and sales taxes, and they say it raises more money than the Department of Revenue projected.
The Department of Revenue said the bill came up $3.2 billion short of level-funding public education. IFO says it’s $1.5 billion.
That’s a problem, but it doesn’t tell us anything about the merits of moving away from property taxes. It only tells us that the bill’s authors set the proposed rates too low. I know this is regarded as strange alchemy by many Republicans, but you can in fact raise more money by increasing tax rates. Good on Jim Cox for recognizing this, and proposing to raise the income tax rate to 4.4%.
Melissa Daniels has an article focused on the bill’s impact on renters, who IFO says would see a net tax increase. Retired homeowners – the bulk of whom are seniors – would see a big windfall. I bet this is going to rub KP readers the wrong way at first glance, but stay with me because I’m going to try to persuade you that the overall impact is progressive.
The first point to understand is that the two groups we’re talking about here – seniors and renters – are both lower-income groups. Most seniors rely heavily on Social Security for the majority of their income and we know that Social Security benefits are pretty modest. Shifting the school property tax burden away from retired seniors and onto people currently in the labor force is a progressive change in the tax burden. Current workers could potentially choose to work more to afford their tax bills, but that option doesn’t look so good when we’re talking about seniors.
The second point is that the progressive impact of services matters more than progressive taxes. If you look at how other developed countries do progressive redistribution of wealth, you’ll see that the taxes are mostly regressive, but the impact of the services is progressive. The impact of public education services is very progressive. A poor family has a greater need for free public school than a rich family who can afford to send their kids to private school.
The current public education system in PA is not very progressive at all in its distribution of services. Areas that have a very valuable property tax base and lots of earned income tax-paying residents have well-funded schools with lots of amenities, and areas with lower property values and fewer EIT-paying residents have crappier schools with fewer amenities. A more progressive vision for public education would guarantee that all students get to go to well-funded schools regardless of where they live.
That vision is not really possible as long as we’re funding schools via local property taxes. If funding moves to the state level, we can have a real debate about funding formulas, and try to secure equal spending per student, at the very least. But as long as the education funding is coming from 501 different tax bases, the best hope you have is getting the state to top up funding for poorer districts. Ed Rendell started doing that, but Republicans rolled back the “costing out” funding formula probably because it felt like welfare to them.
State transfers to low income districts seems like an unsustainable political arrangement, and is ultimately why I think it would be a better strategy for liberals to support moving education financing to the state level, and then try to secure equal spending there.
The Corbett administration is already considering moving toward a weighted funding approach where growing districts get more funding, as education dollars follow students from district to district based on enrollment. It would also allocate more money for low income and special needs students. Combined with HB1776, this would be a huge win for a progressive distribution of education services. That’s what’s ultimately most important here.