There is a lot of buzz about a proposal in Pennsylvania to repeal most of the property tax. SB 76, which Sen. David Argall (R) introduced last year, would eliminate all school district property taxes in the state and replace the revenue with increased income and sales taxes. He would raise income tax rates to 4.34 percent from 3.07 percent and the sales tax rate from 6 percent to 7 percent.
Argall's bill represents horrendously bad policy. Yes, people dislike the tax, which makes repeal an easy political target. But states should be strengthening the tax, not trying to diminish it.
Public finance experts are almost unanimous in their belief that the property tax is the ideal way to fund local government services. Pennsylvania's local property tax raises more than $5 billion a year. And like in most states, the tax primarily funds K-12 education (the state contributes only 34 percent of total funding).
We all want well-staffed police and fire departments, paved roads, regular trash collection, and, above all, good schools. We want someone to answer the phone when we dial 911. The property tax is the one tax that provides a stable, continuous stream of revenue to localities to ensure that those services are adequately funded.
The property tax is capitalized into housing values -- that is, property value goes up because of the services being provided as a result of the taxes paid on the property. The correlation between good public services and high property values is no coincidence. Just ask any real estate agent.
Moreover, unlike most levies, the property tax is easy to administer and even easier to comply with. You can't cheat on your property taxes. You can't hide your land. The government knows where it is. From a compliance standpoint, things couldn't be easier. You get your bill and pay the tax. Except for paying the money, compliance is hassle free. With little effort, compliance (or foreclosure) could be 100 percent. With few exceptions, the property tax gap is small. That has to make honest taxpayers happy.
Most importantly, the property tax ensures local political control. State funding of local services comes with strings -- all centralization does. That may seem like a benign problem. But when the states pay for services like education, those services are almost always underfunded -- that is, local citizens don't get as many services as they want or are willing to pay for. That is both inefficient and undemocratic. And local services are too important. When the state pays for local services, the local governments become just another special interest seeking money.