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September 24, 2013

House looking at tax reform plan

NEW CASTLE — Lawmakers in the state House are moving on a plan to get rid of the property tax by letting local school districts decide how to make up the money by increasing the earned income tax and the taxes paid by businesses on the goods and services they sell.

School groups largely approve of the plan. But liberal groups say the bill exempts too many businesses, meaning those companies won’t have to pay any school taxes at all, if their property tax is wiped away.

The Pennsylvania Chamber of Business and Industry objects because the group worries schools will lean too heavily on business in order to limit increases in the earned income tax.

The gambit comes as lawmakers try to find a new solution to eliminate property taxes, which are particularly reviled by seniors who have little income but own their homes. Last year’s bid to replace property taxes was derailed when a state analysis determined the shift would leave a $1.5 billion shortfall in the first year. Proponents of that plan reintroduced the bill this year, but it has remained mired in a committee.

A package of bills approved by the House finance committee would allow school districts to use the earned income tax and business privilege tax to replace property taxes. Local school boards would determine how to increase each of those taxes. An amendment added yesterday bars schools from asking businesses to shoulder more than 50 percent of the increase needed to offset loss of property tax dollars.

Alex Halper, director of governmental affairs for the Pennsylvania Chamber of Business and Industry, said the chamber opposes the bill. The amendment to limit the amount schools can saddle on businesses may prompt the chamber to re-examine its position, he said. But the group has always objected to efforts to reduce property taxes by allowing tax increases on business.

The Pennsylvania School Board Association endorses much of what the legislation tries to do. But the group objects to a portion of the bill that says that once a school district gets rid of property tax, it can never resurrect it.

Jay Himes, executive director of the Pennsylvania Association of School Business Officials, said that new property tax plan is better than the bid to increase the sales tax.

This is a move “in the right direction (away) from the state controlled, one-size-fits-all approach in the (previous) property tax elimination proposal. House Bill 1189 will not mandate a shift in school taxes from businesses to individuals.”

Michael Wood, research director with the liberal-leaning think tank the Pennsylvania Budget and Policy Center, said many manufacturers, beer distributors, banks, farmers and food processors would no longer pay school district taxes of any sort, because they are not required to pay the gross receipts-based taxes.

State Rep. Seth Grove, the chief author of the bill, said that those business exemptions are baked into the business privilege tax law and were not drafted as part of the property tax reform bill.

Democrats have opposed the measure, saying the plan’s wrong-headed. The state’s real problem is that it’s not paying its share of the cost of education, forcing schools to put too much burden on taxpayers, said state Rep. Mary Jo Daley, D-Montgomery County, at a finance committee meeting.

State Rep. Brad Roae, R-Crawford County, said the problem isn’t that schools aren’t getting enough money. Roae blamed schools for misspending the money they get by investing too heavily in buildings and athletic complexes. Most school districts have also been handing out pay raises to employees that outstrip inflation, Roae said, while not requiring employees to share in the cost of benefits.

(Email: jfinnerty@cnhi.com)

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