Ken Rainey asks:
Is anybody doing serious, nonpartisan research on H. B. 1776? I was in Harrisburg yesterday to lobby for restoring the general assistance cuts and saw the 1776 rally. At first I was dismissive, but then considered that the property tax has long been viewed by liberals as the wrong way to fund schools. 1776 as it stands would be a disaster because, while relieving angry seniors of their property tax burden, it would create windfalls for very wealthy land owners and would expand the regressive sales tax. The constitutional amendment would make an outdated document worse. But we should try to capture the enormous energy of the anti-property tax movement to at least draft an acceptable alternative. I fear this is just a right-wing get out the vote effort without any serious core.
I already addressed some of these issues in this post on HB 1776, but let’s do it again since it’s in the news.
The short answer is that a school finance reform bill worthy of liberals’ support must have:
1. Revenue neutrality
2. Retain the option to tax land rents
3. Equal spending per pupil
Here’s the dilemma for liberals:
On the one hand, we really should want to see school funding moved to the state level. Tying local school revenues to local property values is unconscionable in my view. The resulting racial and economic segregation is a totally predictable consequence, and I think it’s wrong that PA doesn’t have equal spending per pupil. Moving school funding to the state level would sever the link between school funding and economic geography, taking the most persuasive argument against equal spending off the table.
On the other hand, the land tax is easily the best tax for funding public services. It basically just captures some of the windfall that individual property owners reap from the community’s collective efforts to make the neighborhood or town a more attractive place.
If I’m a vacant lot owner, and all my neighbors improve their properties, the value of my vacant lot increases even though I didn’t do anything. It’s the community’s efforts that made my land more valuable. Taxing that windfall is a good way to fund public services, because the community created that value, and this captures the value back for the community as public goods and services.
Unfortunately in most municipalities, the land tax is combined with a tax on property improvements, which I think has bad economic effects. The property tax discourages reinvestment in properties and encourages land speculation. Going back to my example, the property tax takes a bigger bite from my neighbors who are doing a good thing and investing in improving their properties. Meanwhile, the vacant lot owner who’s not improving his property pays a lower rate despite reaping a windfall. The incentives are perverse.
Some municipalities have split their real estate tax rate, levying a higher tax rate on land values, and another lower tax rate (or none at all) on buildings.
This tends to reduce the tax burden on low income people, and raise the tax burden on vacant lot owners, surface parking lots, properties with excessively high land-to-building ratios, and any other kinds of properties where there’s a lot of unimproved land in an expensive area. According to Pat Toomey, 75% of Allentown residents got a tax cut when the city introduced the two-rate tax.
So I really want to see the land tax option retained, even though I also support moving school finance to the state level. As long as HB 1776 only applies to school districts and not cities and towns, I will probably support it.
What do you guys think? Is it worth giving a windfall to land speculators in order to get more equitable funding for education? What if the trade-off is more sprawl and land-hungry development?