Tax Calculator: Comparing the House Republicans’ tax plan with Wolf’s

Both Gov. Tom Wolf and the Pennsylvania House of Representatives have advanced plans that give significant property tax relief to homeowners by increasing the state sales and income taxes.

But the two plans diverge when it comes to who would benefit most.

The $4.9 billion property tax relief plan backed by House Republicans directs more money to residents in school districts with the highest property tax bills, which would favor wealthier school districts. The plan also reduces the property tax rate in every school district, extending more of the perks to businesses than under Wolf’s proposal.

“We tried to drive [property tax relief] to the areas that had the highest property taxes, but in a way that helps everyone,” said Rep. Seth Grove, R-Dover Township, a member of the House Appropriations Committee.

Property taxes provide a portion of the funding for schools.

Wolf’s $3.8 billion plan focuses on relief for homeowners, especially in school districts with lower property values and high tax rates. It would reduce the property tax rate in 311 of the state’s 500 school districts, and some of the state’s poorest school districts would be able to completely eliminate property taxes.

The money to fund property tax relief in both plans comes from increasing the state sales tax from 6 to 7 percent under the House plan and from 6 to 6.6 percent under Wolf’s plan. Both plans would also raise the state’s income tax from 3.07 percent to 3.7 percent.

Franklin & Marshall College pollster Terry Madonna said the major hurdles for property tax relief are finding enough revenue to replace property taxes. And, making major changes to the state’s tax structure creates winners and losers, he said.

Legislators naturally resist a bill that harms their district.

The Pennsylvania House passed the plan introduced by Rep. Stan Saylor, R-Windsor Township, on May 13, and it was sent to the Senate Finance Committee on May 20.

Wolf’s press secretary, Jeff Sheridan, said the governor is “very encouraged” that the House voted for property tax relief.

With the bill’s passage in the House, it means that Wolf and House Republicans will just have to compromise on the details, and they won’t start their budget discussions miles apart.

The state Legislature has until June 30 to pass a budget.

How the two plans work

Wolf’s plan and Saylor’s plan accomplish property tax relief in different ways.

The Wolf plan keeps all of the state money transferred to each school district in one pot of money, which is first applied to the homestead exemption.

How the homestead exemption works

If the median property value in a school district is $100,000, then the maximum homestead exemption would be half that, or $50,000. In this case, a property worth $200,000 would pay the taxes on $150,000 and properties worth $50,000 or less would pay no property taxes.

Under the homestead exemption, a property’s assessed value can be cut by up to half of the median assessed value of all primary residences, or homesteads, in a district.

Currently, most school districts don’t receive enough money from the state to get close to maxing out their homestead exemption.

If a school district can pay the maximum homestead exemption to each residence, then it can take any remaining money and use it to reduce the property tax rate, which more than 60 percent of school districts would be able to do under Wolf’s plan.

Saylor’s plan divides the state’s money into two new funds: one that would reduce the property tax rate and one that would fund the homestead exemption.

This guarantees that some money would be available to reduce the property tax rate, which benefits businesses and landowners, not just homeowners. All the money raised from the sales and income tax increases under this plan would be applied to property tax reduction.

Saylor’s plan also adds money to the state’s current property tax and rent rebate program geared to help seniors and people with disabilities afford to live independently. Wolf’s plan does not make changes to that program, but adds a new program where all renters who make less than $50,000 would receive a $500 tax rebate.

Property tax relief under Wolf’s plan would not begin until fiscal year 2016-17, while there would be a partial amount of property tax relief provided under Saylor’s plan next year.

Tax relief percentages: Wolf's plan vs. Saylor's plan

The governor's proposed property tax relief plan shows more equitable increases of state money allocated to each school district in Allegheny County from 2014-15 to 2016-17 than the plan advanced by the state House of Representatives.

Residents in wealthier districts in the county benefit more under the House plan.

The districts are sorted top to bottom from lowest median property value to highest median property value.

Graphics by Eric Holmberg

Sheridan, the governor’s spokesman, said Wolf’s plan is more holistic.

“The Saylor plan is specifically property tax relief,” Sheridan said. “The governor’s budget is part of a plan that closes the deficit” by sending a portion of the new tax revenue back to the state’s general fund.

Some of the new revenue would come from expanding the sales tax to 46 categories of goods and services that are not currently taxed.

Wolf’s plan would put a sales tax on nursing home care, daycare, cable television, college meal plans and student fees, among other things.

The new taxes on an annual $62,520 nursing home bill in Allegheny County would be $4,752 under Wolf’s plan. On an $86 monthly cable bill, a consumer would pay an extra $78 in sales tax over an entire year.

Grove said he didn’t think Wolf’s plan to expand the sales tax would pass the House.

“It's really a political nonstarter,” he said.

He added that he thinks it would be bad for the state economy, especially in border counties like York, where shoppers from Maryland visit to avoid paying sales tax.

Who would benefit?

The two approaches produce drastically different results for Allegheny County taxpayers.

Saylor’s plan drives a disproportionate amount of money to residents of Allegheny County’s most affluent school districts, such as Pine-Richland, Upper Saint Clair, and North Allegheny school districts.

The 10 school districts with the highest median property values in Allegheny County would receive at least 10 times more money for property tax relief under Saylor’s plan as they do now. Only six of the county’s other 33 school districts would receive a similar increase.

In Upper Saint Clair, for example, the tax bill on the median property, which is worth $228,000, would decrease from about $4,800 to $2,800 under Saylor’s plan. Under Wolf’s plan, the tax bill for that same property would be about $4,000.

“Any tax plan that drives money to wealthier districts will only exacerbate the horrendous situation in our schools,” Jessie Ramey, a Chatham University associate professor who served on Pittsburgh Mayor Bill Peduto’s education task force, wrote in an email. “Pennsylvania is the least equitable state in the country when it comes to funding its schools — and we actually have politicians handpicking their favorite districts to hand out ‘extra’ funds.”

Overall, the Saylor plan reduces the property tax rate in every district and sends 53 percent more money to Allegheny County than Wolf’s plan. It’s also the more expensive plan by $1.1 billion.

Under Wolf’s plan, only 18 of 43 school districts in Allegheny County would be able to reduce the property tax rate.

But it would send money to the most distressed areas of the state to reduce tax rates in school districts with low property values. The governor’s plan provides more money than Saylor’s plan to the Pittsburgh Public Schools district and five of the six poorest districts in the county, including Duquesne City, Clairton City and Sto-Rox.

Allegheny County's richest school districts

School District Median Assessed Value of Homestead Properties
Pine-Richland $232,100
Upper Saint Clair $227,850
North Allegheny $222,500
Quaker Valley $211,000
Fox Chapel Area $204,700
Mt Lebanon $196,300
Avonworth $186,200
Hampton Township $185,100
South Fayette Township $171,600
Moon Area $156,800

See median property values and state money allocated for each Allegheny County school district here.

In the Duquesne City school district, the median property is worth $35,100 and its property taxes are about $216. Wolf’s plan would eliminate property taxes in the district; under the Saylor plan, that homeowner would get a $47 tax bill.

Not only are poorer school districts better off under Wolf's plan, but people in less expensive homes across all districts would benefit because of how the homestead exemption works.

It applies the same reduction to the assessed value of each property in a school district, which has more of an impact on less valuable houses.

For instance, a $25,000 reduction cuts the property tax bill of someone in a $75,000 house by one-third, but it barely makes a dent in the tax bill of a $300,000 house in the same district.

Phasing out property taxes

One of the problems with Pennsylvania’s property tax system is that it’s not administered uniformly across the state.

“In most polls that have been done,” Madonna said, “it's the most unpopular tax in the state.”

Rep. Grove said part of the problem is that counties reassess their properties at different intervals.

For instance, Blair County is currently doing a reassessment, but the last time it did one was in 1958. Properties that have improved or declined since 1958 have likely been underpaying or overpaying their property taxes for decades.

Allegheny County’s most recent reassessment in 2012, which was only conducted because of a court order, was far from a smooth process as property values immediately increased 46 percent. More than 130,000 property owners appealed the results of their new assessments.

Michael Wood, research director for the Pennsylvania Policy and Budget Center, who recently analyzed property tax relief, said another problem is that neighbors with nearly identical homes may have wildly different property tax bills, especially if one homeowner appealed the assessment.

“I think that's one of the things that makes people mad about property taxes,” he said, “because they feel like it's not fair.”

Reach Eric Holmberg at 412-315-0266 or at eholmberg@publicsource.org. Follow him on Twitter @holmberges.