Lower property taxes? There's a catch

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HARRISBURG -- All homeowners would like to see their property taxes lowered, but are they willing to pay more state income tax and state sales tax to make that happen?

State Rep. David Levdansky, D-Forward, chairman of the House Finance Committee, will start looking for the answer today and tomorrow, as his committee holds hearings in two Eastern Pennsylvania towns on his new legislation to reduce property taxes. He expects to hold additional hearings in the Pittsburgh area early next month.

When it comes to lowering property taxes, there is no free lunch, he cautioned.

"Property tax relief means you have to shift the tax load off property taxes and onto something else, such as sales taxes or income taxes," he said.

His proposal, House Bill 1600, would increase the personal income tax rate to 3.29 percent from the current rate of 3.07 percent, and would increase the state sales tax rate to 6.5 percent, up from 6 percent in most counties.

In Allegheny and Philadelphia counties, the sales tax would go to 7.5 percent because it's 7 percent now in those counties.

The proposed tax changes each would generate about $750 million, Mr. Levdansky estimated. That $1.5 billion would be added to an estimated $1 billion in revenue on slot machine gaming that is earmarked for property tax reduction once all 14 casinos in the state are up and running, which won't be for another two years or so.

Altogether, Mr. Levdansky said, those sources would generate about $2.5 billion that would be used to reduce school property taxes paid by homeowners. Currently, homeowners around the state pay about $5.3 billion a year in school property taxes, according to the Legislative Budget and Finance Committee. Mr. Levdansky estimates his plan would make a significant dent in those taxes.

There is no painless way to raise a large sum such as $2.5 billion a year, he said.

Mr. Levdansky admitted his plan doesn't go nearly as far as some others, such as Stop Taxing Our Properties -- called STOP -- advocated by a group in the Pittsburgh area, which seeks to totally abolish property taxes. A plan offered by conservative Republicans in the House called the Conservative Caucus would lower the sales tax rate to 5 percent but greatly broaden its base by taxing food, clothing and other items that are now exempt.

To completely eliminate school property taxes, an additional $10 billion in new revenue would be needed, Mr. Levdansky said. To eliminate county and municipal property taxes as well, $14 billion would be needed. Doing that would require huge increases in the sales or personal income tax, which many people would oppose, he said.

Such radical tax changes also would require a change to the state constitution, which could take three years or more, Mr. Levdansky said.

He said he wants to get public input on his bill before the Legislature returns to the Capitol Sept. 17, so the Finance Committee will hold a hearing today in Stroudsburg, Monroe County, and tomorrow in Pottsville, Schuylkill County.

Next week the hearings will be in the Philadelphia area, and during the first two weeks in September, in the Pittsburgh area. He doesn't have exact dates yet.

House Democratic leaders, such as Majority Leader Bill DeWeese of Waynesburg and Majority Whip Keith McCall of Carbon County, already have said that efforts to bring about property tax relief will be one of their top priorities for the fall session. Mr. DeWeese has talked in the past about raising the sales tax by 0.5 percent as a way to lower property taxes.

Gov. Ed Rendell has talked about raising the sales tax a full percentage point, with all the money going to lower property taxes.

Bob Logue, a former KDKA radio talk show host who heads the STOP plan, said the Levdansky plan doesn't go nearly far enough. Mr. Logue favors totally abolishing property taxes. He fears that while the Levdansky plan would lower property taxes by a few hundred dollars for a year or two, there is nothing to stop school boards from simply raising the school district tax rates and wiping out the savings.

He noted that in May, voters around the state soundly rejected Act 1, which would have increased earned income taxes and lowered property taxes. Mr. Logue said that Act 1 and the Levdansky plan would only mean "a temporary reduction of property taxes and a permanent increase in replacement taxes," which is "nonsense."

Bureau Chief Tom Barnes can be reached at tbarnes@post-gazette.com or 1-717-787-4254.


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