Rethinking the Property Tax

Property taxes in Pennsylvania appear locked into a long-term uptrend. In recent years, there have been huge increases in the portion of the property tax that finances county government. County officials have levied these increases to pay for the unfunded mandates imposed by the state government in Harrisburg. The largest share of the property tax funds the public school districts, and virtually nobody foresees a time when the expenditures of those districts will stop rising. These ongoing pressures for additional tax revenues raise the question: Is it politically and economically feasible to continue raising property taxes in the coming years?

Some might look at the results of a recent ballot proposal in Lawrence County and conclude that Pennsylvanians prefer a property tax over others types of taxes, but this conclusion is unwarranted. When offered the opportunity to receive a modest reduction in the public-school portion of their property tax in exchange for a one-percent increase in their earned income tax, voters in every school district in the county overwhelmingly voted against it. The context here is crucial. Voters were not opposed to property tax relief, but to a package deal that represented an overall tax increase.

We have a political stalemate in Pennsylvania, because Harrisburg has mandated that the only permissible reform to public-school funding must be structured like the Lawrence County proposals. The psychology is all wrong. It’s hard for voters to get excited about a proposal that makes an obnoxious, already-high tax just a little less high (i.e., the property tax) at the price of ratcheting up another obnoxious tax—the income tax—when the federal/state/local taking of income is already at an uncomfortable level. If Harrisburg really wants reform, it needs to emulate the boldness of the Michigan government in the 1990s, when it totally scrapped the property tax for school funding, and replaced it with a two-percent hike in the state sales tax. I suspect that Pennsylvania voters would be far more comfortable with an increase in one type of taxation if it were offset by the complete removal of another type of taxation. If you give Pennsylvania voters the chance to eliminate one part of their tax bill completely, then tax reform has a fighting chance for approval.

The larger, more fundamental problem here is the property tax itself. This form of taxation is totally antiquated, appropriate in America’s 19th-century agrarian society, but out of place today. In the 1800s, when there was no income tax and it was considered none of the government’s business how much money anybody made, the property tax served as a proxy for one’s income. This made a lot of sense then, because it was logical to assume that the citizen farming 80 acres had a higher income than one farming only 40 acres. Today, though, the homesteads of most Americans are not their source of income, but merely where they live. Why, then, take more money from a citizen with a house of 1500 square feet than one with 900? One of the elementary principles of prudent taxation is that, in order to avoid harming citizens, taxes should take into consideration the individual’s ability to pay. Today, one’s ability to pay depends far more on one’s income than on the size of one’s house. To continue taxing people as if their house were generating their income is absurd.

An additional fault of the property tax is that it can jeopardize home ownership. On the surface, it appears that once a person has paid off the mortgage on his house, then he owns it free and clear, but this is not so. If the homeowner falls on hard times and can’t pay his property taxes, the sheriff comes and confiscates the house. Under the present system, a person doesn’t really “own” his home completely, but in effect rents it from the local government which permits him to keep it only so long as the “owner” continues to pay taxes on it. We have heard of senior citizens—wonderful, law-abiding citizens who worked hard for decades to buy their own home—having to sell their home because they couldn’t afford the taxes. This is abominable. And how many of America’s homeless persons became so because they fell on hard times and were evicted from their homes because they couldn’t pay their property tax?

In an era when it has been the federal government’s policy to facilitate home ownership as a central feature of “the American dream,” it is anomalous for local governments to make it difficult for some citizens to keep their homes. The property tax is outmoded, unfair, irrational, and destructive. It’s time to abolish it.