Statement of Marc Stier at Senator Jimmy Dillon / Representative Robert Freeman press conference on establishing a property tax circuit breaker in Pennsylvania on April 25, 2023
I’m very pleased to stand with Senator Jimmy Dillon and Representative Robert Freeman in support of establishing a property tax circuit breaker in Pennsylvania.
The Pennsylvania Budget and Policy Center first proposed such a plan in 2015 and our new organization, the Pennsylvania Policy Center, continues to support it. Representative Freeman has long championed it, and we are glad to see Senator Dillion become a champion of it as well.
Pennsylvania has long had a serious problem: our tax system is unfair. State and local taxes in our commonwealth place a much greater burden on families with low incomes and moderate incomes than those with high incomes.
Just to give you an idea of how unfair our tax system is, consider this:
The 20% of families with the lowest incomes in the state, who have incomes below $23,000 per year and an average income of only $13,000, pay 13.8% of their income in state and local taxes.
The 20% of families in the middle of the income scale, with an average income of $61,000 per year, pay 11.1% of their income in state and local taxes.
But the richest 1% of families, with an income of more than $667,000 and an average income of $1.75 million, pay only 6% of their income in state and local tax.
This is an upside-down, tax system that is fundamentally unfair. But it is neither necessary nor common. Every state surrounding Pennsylvania has a fairer tax system.
There are many reasons for the unfairness of our tax system. One is that our uniformity clause prohibits graduated income tax rates. Another is that we rely too heavily on property taxes to fund our schools. Pennsylvania provides only 38% of the funding for our schools, while national average for all states is 48%.
Property taxes tend to burden low- and middle-income people more than those who are wealthy. In Pennsylvania, the 20% of families with the lowest incomes in the state pay 4.6% of their income in property taxes. The middle 20% of families pay 2.7% of their income in property taxes. And the top 1% of families pay only 1.6% of their income in property taxes. (All data from Institute on Tax and Economic Policy, Who Pays, 6th edition, 2018, https://itep.org/whopays/pennsylvania/.)
Property taxes burden people with low and middle incomes more than those with high incomes because the lower a family’s income, the higher the cost of housing relative to their income. Rich people do tend to have bigger houses and sometimes have more than one. But the income of the very rich tends to be so high that the cost of their homes is relatively low compared to their income.
On the other hand, because their incomes are so much lower, whether they own or rent—and property taxes are included in rents—low- and middle-income Pennsylvanians must pay a larger share of their income for housing than those who are wealthier. And that shows up in the higher share of their income that goes to property taxes.
This problem is especially problematic for seniors, who may live for many years with relatively fixed incomes that don’t rise with the cost of both housing and property taxes.
The basic unfairness of property taxes is exacerbated because people with lower and moderate incomes tend live in communities with less wealth. And, as result, those communities have to tax themselves more to pay for schools and local government services.
The extent of the property tax problem varies from one region to another. It is an especially serious problem inside the arc of counties from York to Schuylkill to Carbon to Monroe. But it is a problem that afflicts families in every county in the state.
One solution to the problem is a property tax circuit breaker.
With the most common version of a property tax circuit breaker, the state gives taxpayers a credit or rebate for taxes above a certain percentage of their income. This credit could go to all taxpayers, it could be limited to those below a certain income threshold, or it could be gradually reduced as the taxpayer’s income increases. By giving taxpayers a credit for taxes they pay, the program protects both homeowners and the communities that must rely on property taxes to pay for schools and local government services. And because the program provides a credit or rebate, limiting it to taxpayers with low and moderate incomes taxpayers and / or giving a larger credit to seniors would be constitutional under the uniformity clause.
This is not a new or uncommon idea. New York instituted such a program in 2015. Sixteen other states and the District of Columbia have a property tax circuit breaker.
Pennsylvania currently has a limited version of this program, the Property Tax / Rent Rebate program. But this limited program only benefits Pennsylvanians 65 or older, widows and widowers 50 or older, and people with disabilities 18 and older. And only those with incomes below $35,000 for homeowners and $15,000 for renters benefit from the program. Governor Shapiro has called for expanding the program. However, what Representative Freeman and Senator Dillon are calling for today is a bolder program that would benefit far more Pennsylvanians.
We have long believed that Pennsylvania’s unfair taxes are one of the two largest public policy problems in our state. The other is, of course, our immoral and now unconstitutional system of funding K-12 education.
At base, however, the two problems are really one. Our over-reliance on property taxes to fund K-12 education is, as we’ve pointed out, one of the sources of tax unfairness. And raising the funds necessary to reform the way we fund K-12 education will require new tax laws that ask the richest Pennsylvanians to pay their fair share.
So, we believe that the legislation that Representative Freeman and Senator Dillon propose today is critical—and not only to solve the problem of unfair taxes. We believe that what they propose today is likely to be part of any comprehensive solution to the K-12 school funding issue.
