Tax Cut Power Grab
Opinion- The Editor dissects Governor Wolf’s property tax cut proposal and what it means to Tioga County.
Paul Gordon Collier- An old adage comes to mind when I think about the current debate over property tax reform. The old adage goes something like this, “He who owns the gold makes the rules.” This idea of the one who holds the gold being the one who makes the rules is the primary principle why I stand in opposition to a tax cut that could save my family over $1000 a year.
As we covered in the last issue of the Tioga Freedomist, Governor Tom Wolf has released his budget for the fiscal year starting in July of 2015. One of the major components of his budget proposal was property tax reform.
Governor Wolf’s budget outlines a plan the Governor claims will reduce property taxes by as much as 50 percent. He plans on doing this by funding education through a severance tax (so-called ‘fracking tax’) and other new taxes on everything from cigarettes to child care. His plan calls on Harrisburg increasing the percentage it pays for public education from 35 percent to 50 percent. To put that in perspective, that increases Harrisburg’s part in the public education budget by a staggering 43%.
What most people might hear in this debate is that Governor Wolf will cut your property taxes by 50 percent. As a homeowner, let me tell you that this news would personally have a huge impact on my family’s financial situation.
But, if you simply stop at the opening sentence, you will miss some very important intended or unintended consequences of such a move, as well as miss out on the possibly disputable fact that, at the end of the day, you will still be sending as much of your money (if not more) to governments (be they local, county or state) as you were before the promised 50 percent property tax cut.
The Wolf tax cut is not a tax cut at all, but a re-assignment of tax collector. The local and county governments will not be collecting as much revenue as they were, but the state government, Harrisburg, will be collecting more.
As anyone who has ever sat in on a local government meeting knows (be they borough meetings or county meetings), a majority of the actual work that that local government does is grant writing and lobbying for a bigger cut of the budgets of the governments higher up in the hierarchy. Any dollar that comes from a higher office always has strings attached.
What this proposal actually means, if it were to go through, is that the power of local governments would be even more reduced while Harrisburg’s power increases. A smaller group of individuals will have greater say on the money that local schools get and the conditions the local schools must meet to accept that money.
Coupled with this proposal to replace the local property tax collector with the Harrisburg sales tax collector is Governor Wolf’s bipartisan commission to develop a fair funding formula that will ‘distribute education dollars to local districts.”
This commission will decide whether Tioga County gets to keep more or less of the money the state collects from it, with a significant portion being money that the localities once had the power to control themselves. Perhaps, if Tioga County is one of the fortunate localities favored by this commission, it may get MORE money than the state collected. Maybe Tioga County will get some of Dauphin County’s dollars, or, as is more likely, maybe Dauphin County will get some of the dollars our local school districts once collected and put back into our schools.
When one hears of a tax cut, one that could actually reduce their taxes by $1000 or more a year (as in my case), one cannot help but be tempted by such a proposal. But when the benefit of that savings (even if it were NOT offset by new taxes, ones that will actually regressively affect the bottom 20 percent) means a loss of local sovereignty and more direct accountability by a local community, I must singularly, aggressively, reject such a power grab by Harrisburg.
Patrick Henry once said, “Give me Liberty or Give me death.” Perhaps I can change that to, “Give me local sovereignty, even if it means higher property taxes.”
America was founded on a principle of individual liberty from which we created the great laboratory where many ideas could be tried, with the successful ones being repeated by other local communities. This proposal is yet another step towards killing the great engine that made America one of the most significant innovators of the past 200 plus years. The more we consolidate power in small circles, the more we kill that great engine, Liberty.
Read about the Governor’s Budget here.
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Paul Gordon Collier- Pennsylvania politics is receiving some national attention this week from the conservative news publication, National Review. John Fund, a National Review and also a Wall Street Journal correspondent, focused his attention on an obscure state legislative race in Philadelphia’s 170th State House District this past Tuesday night.
The special election was to fill a void left behind by the previous state representative in that Philadelphia district, Brendan Boyle (D). The GOP put 26 year old Martina White against the democratic challenger, Sarah Del Ricci. Del Ricci was a hand-picked candidate by the current Lieutenant Governor, Mike Stack III.
John Fund, in the National Review article, stated, “The governor has said he plans to provide property-tax relief with some of the money, but the tax increases are likely to outweigh the property-tax benefits by a ratio of three to one. Apparently, voters in Northeast Philadelphia didn’t buy that logic. A tax revolt is alive and well in the Keystone state, and the Republican legislature would be foolish to go along with Wolf’s predatory increases.”
Other factors in the race, however, may have been the candidate selected by Lieutenant Governor Stack. The candidate, Del Ricci, was not favored by the Unions, who actually broke in favor of the GOP candidate, Martina White. Boyle, the man whose former seat was being contested, stated, “This could have remained a Democratic seat.”
Boyle pinned the loss less on the tax issue and more on “personal relationships” getting in the way of picking a candidate the base of the democratic party in that district (as represented by the Union leaders) would favor. Boyle also criticized Del Ricci for not working as hard as White to win the election.
Whether the race was about taxes or unions feeling left out, the election produced only the second Republican to represent the city of Philadelphia in state-wide office. It was also the first time a republican picked up an open seat in an election in over 25 years. The fact that the democrat who lost was one hand-selected by the new Lieutenant Governor is bad news both for the him and the current Governor, Tom Wolf, who is already dealing with a democratic party at odds over the recent Attorney General controversy.
The win extends the GOP’s super majority in the State Assembly to 120-83, creating yet another impediment for the Governor to get pieces of his agenda passed through the PA State legislature.
Reveling in her victory, White said in her Election night speech, “”It’s an honor to have the level of support we’ve had. I know it’s a major upset for my opponent and probably the lieutenant governor as well.”
The fact that the GOP candidate won the election by 14 points makes this win all the more stunning in a district in which registered democrats outnumber registered republicans by a 2 to 1 margin.
Republican Party of Pennsylvania Chairman Rob Gleason said this about White’s 14-point victory:
“The Republican Party of Philadelphia has turned the corner with Representative-elect Martina White’s victory today. The hard work of Republican Party of Philadelphia is paying off, and I am confident that tonight’s win will be the first of many victories to come for the Philly GOP…..In the first election after the Democrats announced their plans to hold their 2016 National Convention in Philadelphia, Republicans have delivered a resounding welcome with a huge win.”
In the 2014 Election, Pennsylvania was the only state to flip a Governor from a republican to a democrat, despite producing historic GOP majorities in the State House and State Senate. This latest upset victory for the GOP, with a 14 point majority included, may indicate democrats have a lot to do to win back the voters of Pennsylvania, despite their victory in the Governor’s race in 2014.
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Paul Gordon Collier- Governor Tom Wolf has recently introduced his first PA Budget this past Friday, the 6th. He presented an outline of his budget proposal to the PA General Assembly. The budget is an overall increase of $5 billion from last year’s budget (a 16 percent increase), which includes $4.7 billion in tax increases, the largest tax increase in PA history.
That tax increase, coupled with what is missing from the Governor’s budget, addressing the public employee pension issue the Republicans have been calling for, leaves Harrisburg insiders skeptical the budget will ever be passed.
The overall theme of his budget is ‘schools that teach, jobs that pay, and government that works.” According to the Governor, his budget seeks to be bi-partisan in nature.
Governor Wolf stated, “As you know, I campaigned on the idea that we need a new approach to governing Pennsylvania — one that challenges the status quo and takes on old problems in fundamentally new ways. And one of the old problems we need to put to rest is the idea that Democrats and Republicans can’t work together to solve Pennsylvania’s problems. I believe we can. And that’s why I have made it a priority the past six weeks to meet with just about every Member of this body, both Democrats and Republicans.”
Governor Wolf has an aim in his budget proposal to eliminate the current $2.3 billion deficit while also working to ” rebuild the middle class.”
The budget proposal contains some popular tax cuts among republicans, a significant shift and increase in PA public school education funding, reductions in property taxes, the severance tax on natural gas, tax raises in both the personal income tax and sales tax, a proposal to raise the minimum wage and an expansion of Medicaid through the Affordable Care Act.
One of the key parts of his budget plan that will have the greatest impact on Tioga County is his proposal for funding. Governor Wolf is proposing a few key tax cuts and tax increases, including the severance tax on the extraction of natural gas (read our article on that proposal here).
“I am proposing a five percent severance tax that is projected to generate more than $1 billion in annual revenues. The impact fee dollars are preserved and will continue to support communities where drilling takes place,” Governor Wolf said.
Other tax increases come from a proposal to increase the personal income tax from 3 percent to 3.7 percent, a 23 percent tax increase, as well as increase in the PA Sales Tax from 6 percent to 6.6 percent, a 10 percent increase.
There is also a proposal to add a $1 per pack of cigarettes tax, earmarking the revenue for education funding. But the Governor also had some good news in the form of direct and indirect tax cuts.
Governor Wolf has outlined a method of indirectly reducing property taxes (which will be detailed below). This tax reduction is part of his overall assertion that he will reduce taxes for “average middle-class homeowners by 13 percent.”
On this point, Governor Wolf cited the legislation proposal last July by Republican House Majority Leader Dave Reed. Citing numerous republicans supporting this legislation, Governor Wolf hopes for a bipartisan approval of this part of his budget.
In response to this part of the Governor’s Budget, the majority leader responded, ““I do appreciate the governor’s efforts to provide property tax relief. People across the state should not have to choose between paying their property tax bill, or buying medicine or heating their homes.”
According to Wolf, his budget, “will reduce the average homeowner’s property taxes by 50 percent, putting more than $1,000 each year in their pockets.”
Wolf also proposes some tax cuts that republicans have long wanted, including a cut in the corporate net income tax rate from 9.99 percent to 5.99 percent in the first year and 5.4 percent by the year 2018. With that tax cut, he also proposes cutting corporate tax loopholes that, according to Wolf, enable “70 percent of companies that do business in Pennsylvania (t0) not pay corporate net income taxes at all…”
The governor would cut the so-called “Delaware loophole” that allows PA corporations to incorporate in Delaware, avoiding the corporate net income tax altogether.
The Governor also proposes phasing out the Capital Stock and Franchise tax, something the Republican majority leader supports. “We agree with the need to reduce the state’s Corporate Net Income tax (CNI) and are relieved the governor took any Capital Stock and Franchise Tax (CSFT) discussion off the table. Now begins the discussion to realistically reach these goals,” Majority Leader Reed responded.
Governor Wolf does offer a a higher tax forgiveness threshold from $32,000 a year for a family of four to $36,400 a year.
One of the key components of his budget is to add $2 billion in public education funding. Wolf explained that “This budget increases our investment in public schools at every grade level. It also recognizes that our responsibility to provide a great education does not begin at kindergarten and end with high school. That’s why my budget also expands access to early childhood education by increasing the number of children in Pre-K by 75 percent.”
The budget also plans on adding $15 million to community college funding, but with a significant string attached to that increase, a call to freeze tuition.
According to Wolf, his plan will reduce homeowner property taxes by 50 percent by replacing the lost funding from what the Governor characterizes as education cuts by the former Governor (see our article about this debate over the definition of cuts).
A significant change in Pennsylvania public school funding is being proposed by Governor Wolf in this budget. The Governor calls on increasing the state’s percentage of public school funding from 35 percent to 50 percent. This will be the first such increase in PA funding percentages in over 40 years. This plan to increase funding percentages, the Governor asserts, will allow local communities to cut property taxes that were raised due to the budget cuts of the last 2 years.
Another major proposal from the Governor is the creation of a bipartisan commission to develop a fair funding formula that will ‘distribute education dollars to local districts,’ Governor Wolf stated. He added, ” that means poorer urban and rural districts are not getting the help that they need.” The criterion for this formula will be based on district size, poverty levels, and student makeup.
Governor Wolf made it clear that he was for an increase in the minimum wage to $10.10 an hour. He did not propose a timeline for how to get there.
Finally, the Governor announced his intention to reverse the former Governor’s decision to turn down the Federal funding to expand the Medicaid program, an issue that is sure to wrangle the feathers of the GOP-controlled legislature.
What is noticeably missing from this budget is a campaign promise by Governor Wolf to create a progressive personal income tax. His flat tax increase in personal income tax goes against his campaign promise to not burden families making $70,000 to $90,000 a year with any tax increase. His budget proposal seeks to offset those tax increases with reductions in property taxes.
Republicans believe that the lack of a progressive tax is either because Wolf knew he did not have the PA constitutional authority to enact such a tax or he knew such a tax would never pass a republican-controlled House.
Even Democrats acknowledge the budget is ambitious, “The governor deserves credit for proposing an aggressive approach aimed at solving Pennsylvania’s most pressing problems,” Senate Democratic Leader Sen. Jay Costa (D-Allegheny) said about the $29.88 billion spending plan. “It is bold; it is responsible; and, it is necessary in light of the structural deficit that exceeds $2 billion, the gaping education funding hole and jobs deficit that Pennsylvania faces.”
While Republicans responded by stating “The Governor is proposing devastating tax increases totaling $4.7 billion for the upcoming fiscal year – the largest in state history. His proposal would raise taxes by $12 billion over the next two fiscal years – about $1,000 for every man, woman and child in Pennsylvania. Families will pay more in personal income taxes and sales and use taxes, which, under the Wolf plan, increases and makes additional items taxable. It is immensely concerning that in his proposal, there is nothing that will keep property taxes from going back up.”
Our local State Senator, Joe Scarnati III, also the Senate President Pro Tempore reacted to the Wolf Budget with this statement, “Over the past four years Pennsylvania’s economy has been on the right track, as Pennsylvania’s unemployment rate is at the lowest rate in more than six years and with the right fiscal policies, it can go lower. We will not allow the irresponsible budget proposed by Tom Wolf to destroy the hard work we have done over the past several years to develop a strong business climate and increase access to good family sustaining jobs across Pennsylvania.”
Our local State representative, Matt Baker, stated, “The recently unveiled 2015-16 budget proposal by Gov. Tom Wolf represents the largest tax increase proposal in the history of Pennsylvania. It would be a $4.7 billion tax hike, which is a 16 percent increase over this year’s budget, for a total of $33.8 billion in spending. I strongly oppose this unprecedented and massive tax-and-spend plan that would hurt so many working families struggling to pay their bills and provide for their families…..The Sales and Use Tax, under his plan, would now include things like baby diapers, child day care, textbooks, doctor’s visits, attorney’s fees, long-term care, wheelchairs, coffins and many other items and services. ….(on the Severance natural gas tax) This is an industry that has provided many families with good jobs and boosted the local economy throughout the Northern Tier. I think we need to be careful that we do not drive this economic giant and job creator out of the state due to such heavy financial burdens.”
Political insiders mostly agree that the budget, as proposed, is dead on arrival. But, even as Representative Baker points out, the process has begun during which some version of the Wolf budget may yet emerge.
Representative Baker stated, “, the governor’s budget address is only the first of many steps in the budget process. During the month of March, the General Assembly will be holding budget hearings with each of the state agencies to determine spending priorities and help us to flush out a final budget plan that will set Pennsylvania up for long-range success and does not place undue burdens on taxpayers. ”
We will keep you posted on these developments as they emerge. Read the Editor’s Opinion on the Property Tax Cut Proposal here.
You can watch the Governor’s complete speech here:
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