Op-Ed: The Case for Property Tax Elimination

Since I was elected Senator in 2019, I`ve heard from constituents on issues that span the spectrum of all areas of the state government. Their feelings on one particular issue have been very clear:  The school property tax is the most hated tax in Pennsylvania (with the gas tax being a close second). 

The property tax is like paying rent to the government for land you own.  It’s easy to see why this antiquated tax is so despised in all corners of the Commonwealth. More than 10,000 homes are seized annually in Pennsylvania and auctioned off for failure to pay the tax. It is particularly troubling that most of the home seizures are from our elderly. Many of our retirees on fixed income are faced with the stark choice of paying for food, medicine, or paying the tax.  This is simply unacceptable.

Property taxes also impede homeowners who long for the autonomy to expand their homestead.  

The way the tax works is that a government entity assesses a price for each piece of property owned. As a home becomes bigger or better, that assessment increases. Not only are homeowners shackled by this, but it also impacts local businesses that would otherwise benefit from selling materials and goods for home expansion.

When presented via ballot referendum question in 2017, the people made their voice loud and clear. By a vote of 54% to 46%, voters statewide supported amending the Constitution to allow for the full elimination of property taxes for homeowners.

Property taxes rates vary depending on the locality or county where a home is located. For example, Chester County has one of the highest average annual tax rates at $4,192 while the average in Philadelphia is $1,236.

If we look at the median value of a home in Pennsylvania ($164,700) and the average rate (1.3%), the average Pennsylvania homeowner pays over $2,200 a year, according to Taxrates.org.

A property tax of a few thousand dollars in addition to a monthly mortgage payment hurts individuals looking to maintain a home especially when they are on a fixed income or living paycheck to paycheck.  Home ownership in PA has dropped from a high of 75% in 1999 to 70% in 2020.

The common defense of those wanting to keep the property tax in place is that our state “can’t afford it” without drastically affecting the quality of education.

I counter that we can make property tax elimination a reality with a little “outside the box” thinking.

For starters, we need to reimagine how we fund education. By redirecting our state funds to follow students instead of systems, not only will we expand choice on where parents can send their children to school, but we will also save money. Currently, Pennsylvania spends over $19,000 per student each school year according to Department of Education statistics for 2019-2020. We are spending more on education than ever but not seeing better results when it comes to academic performance.

Meanwhile, per pupil spending is about $15,000 for charter schools and the average cost of private school tuition is $11,800 a year.

Establishing programs like Education Opportunity Accounts (EOAs) would provide families with direct access to educational resources. Individual school districts would no longer receive the average per pupil state education subsidy for the children who participate in the EOA program. Instead, the funds would be redirected to the child’s education opportunity account administered by the state treasurer and regularly audited by the state. With better accountability and increased competition for students amongst schools, Pennsylvania can actually save money on expenditures for education while improving its quality.

Property tax elimination will lead to benefits in other sectors of our economy.

The average tax savings of property tax elimination for all homesteads would have the same effect of annual stimulus checks for a household. In April 2020, households with two adults and an income under $150,000, received a total of $2,400 on average ($500 more for each dependent child).

According to Forbes, 75% of those households spent their checks on household expenses to stimulate the economy. I think we would see a similar breakdown of spending percentage with property tax elimination and annual tax savings of over $2,000 for an average household.

Increased consumer spending in our Commonwealth grows GDP. Businesses flourish and consumer sales increase with more demand. This growth ultimately leads to more annual money into the coffers of the General Assembly’s general fund available for education spending.

We can also explore revenue alternatives that don’t hurt the wallets of everyday Pennsylvanians.

Several of our private state universities are sitting on billions in untaxed endowment funds. University endowments are comprised of money or other financial assets that are donated to academic institutions. The largest in our state, Penn, has an endowment of over $20 billion after a 41% return from investments in 2021.

Only a miniscule percentage of university endowment funds are expended per year and less than half of those small expenditures go towards tuition reduction and scholarships for students, according to the American Council on Education.

Taxing endowments on wealthy private colleges in Pennsylvania would be significant annual revenue generator for the General Assembly’s general fund.

Another untapped source for revenue is a fee on international remittances conducted by a money transfer licensee or agent.  An international remittance is a sum of money that is electronically sent out of the Pennsylvania economy and into the economies of international destinations. Remittances are primarily utilized by illegal immigrants, foreign workers, and non-US citizens to send earnings back to a foreign country. Over $70 billion dollars is transferred out of the United States and into the economies of recipient countries on an annual basis.

Considering Pennsylvania’s estimated foreign workforce, even a modest fee would generate significant annual revenue for the state.

We also must look at getting our current spending under control. I believe that a thorough review of all 33 state government agencies will reveal significant waste and redundancy. Trimming the fat off these agencies will pay dividends for Pennsylvania in the long run, reduce the cost of our state government, and slash burdensome regulations. Better stewardship of the already exorbitant spending by Harrisburg is key to how can afford property tax elimination.

As I’ve laid it out, full elimination is realistic and fiscally responsible. We just need the determination in Harrisburg to find ways to make it happen.

In late 2019, I joined as a member of the Senate Majority Policy Committee working group on Property tax elimination. Sadly, that working group ended with the emergence of COVID-19 in 2020. I’m in favor of the group starting up again and would certainly sign up as a member.

This session, I’ve gotten the ball rolling on a start to property tax elimination. My bill, SB 619, will exempt households for those who make $40,000 or less annually, are 65 or older, and have resided in Pennsylvania for at least 10 years.  This is not a resolution to the property tax issue, but a short term action to keep some of our elderly from being kicked out of their homes.

The modern model of property taxation has roots in the fourteenth and fiftieth centuries when feudal obligations were owed to British kings or landlords. British tax assessors used ownership or occupancy of property to estimate a taxpayer’s ability to pay.

We must not forget that the Lamp of Liberty was lit right here in Pennsylvania in 1776. In the spirit of our founding fathers who rejected ancient European laws and customs, we can once again embrace our role as a beacon for freedom by eliminating all property taxes on homeowners in our Commonwealth.  

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