Tuesday, May 15, 2007

Act 1 Referendum Means Winners & Losers

On Tuesday, May 15, 2007, referendum questions in a "Yes" or "No" format will appear on most primary municipal election ballots, as required by the Special Session Act 1 of 2006, known as Pennsylvania's "Taxpayer Relief Act".

The initial Act 1 question may be posed simply, but the underlying calculation for an individual's future local taxation is not so easily understood.

A summary of Act 1 was made available by the
League of Women Voters of Pennsylvania in its two-page analysis, dated May 2, 2007, posted here.

According to th
e PA Department of Education's dedicated, official website on "The Taxpayer Relief Act", Act 1 (signed by the Governor on June 27, 2006) was intended to "ease the financial burden of home ownership by providing school districts the means to lower property taxes to homeowners, especially senior citizens, via the funding provided by gaming revenue." That website offers "General Information", "Frequently Asked Questions for Taxpayers", "May 2007 Referendum Guidance", and other official information.

Under Act 1, Pennsylvania school districts are required to seek voters' approval to raise property taxes above a state-determined inflation rate.

Also, Act 1 requires every school district — except Philadelphia, Pittsburgh, & Scranton — to ask voters if they want to increase taxes on local income earners in order to pay for property tax rebates for homeowners.

The referendum questions on the May 15, 2007 Primary Election Ballot generally will read as follows:

However, the individual effects of such "tax relief" are not a simple matter to understand.

An article published on May 9, 2007, in the Patriot-News (Harrisburg), entitled "Will tax-relief promise ring hollow again?", addresses the confusion arising from Act 1's complex calculations, which differ for every school district and which apply differently to taxpayers depending upon their property value & their earned income.

The article noted that the Commonwealth Foundation released, on May 8, 2007, a study that shows, on a school district-by-district basis, the break-even point at which voters would pay more or less in net taxes under Act 1.

A summary of its report, entitled "Act 1 Property-to-Income Tax Shift -- What Voters Need To Know", makes three key points:

A majority "YES" vote on the Act 1 Ballot Question in a school district would trigger the following:

  1. Each local school district income earner would pay a higher Earned Income Tax (EIT) or Personal Income Tax (PIT), depending on the tax type chosen by the local school board. The PIT includes a broader definition of income than the EIT. The higher school district income tax rate would be effective July 1, 2007.
  2. Owner-occupied homesteads and farmsteads can apply for a school property tax rebate. Commercial and rental properties would be excluded. School districts must send out rebate applications to homeowners by December 31, 2007. Rebates for homeowners must be submitted by March 1, 2008.
  3. Each homeowner would receive the same dollar amount rebate, regardless of their current school property tax bill or property value. (School property taxes will be reduced to $0 for those receiving a rebate amount that is higher than actual school property taxes paid.)
The real estate tax to be paid, versus the local income tax to be paid, as calculated for each homeowner, will not, of course, be displayed on their ballot. But there will be different effects upon voters.

The Commonwealth Foundation notes:
"Such a shift will result in a higher tax burden on some, and a lower tax burden on others."

The Patriot article addresses the difficulty of a voter's "Act 1" decision:
Christopher P. Borick, politics professor at Muhlenberg College in Allentown, said it might be confusing for voters.

"I've got a friggin' PhD and do this for a living, and I'm not so positive about what's in my best interest," Borick said. He predicted those who think the law will cut their taxes will be disappointed.

"The history of tax reform in Pennsylvania does not give a lot of cause for optimism that you will see change in the future," he said.
Under Act 1, will you be a "winner" or a "loser"?

Go to the Commonwealth Foundation's webpage here, and get an idea. Be an informed voter.

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Update: 05/16/07:

Following are links to Pennsylvania newspaper stories posted on May 16, 2007, post-referendum, reporting that Act 1 was rejected by almost all school districts in the Commonwealth: