HB 1776, The Property Tax Independence Act
Frequently Asked Questions (FAQs)

Some of the most frequently asked questions (FAQs) about House Bill 1776, the Property Tax Independence Act.

Q. How much money is required to fund K-12 public education in Pennsylvania? Who or what entity determines this amount?

A. The current total cost of providing K-12 public education in Pennsylvania is now approximately $24 billion per year. This figure is the result of Pennsylvania Department of Education and local school districts' financial statements.

Q. The addition of the sales tax on some items currently not taxed has produced opposition to the bill since some people believe it will hamper the ability of specific businesses to compete and be profitable. Is this a valid objection?

A. No. As the broadened sales tax will be uniform, any company, whether a Pennsylvania company or an out-of-state company, that does business in Pennsylvania will be required to collect the sales tax. Also, any Pennsylvania company that provides goods or services to an out-of-state company that does not require a sales tax on the particular goods or services will not be subject to the sales tax.

Q. Is it true that sales tax rates are lower in border states, prompting many Pennsylvanians to shop out of state?

A. No. It is not true that sales tax rates are lower in states that border Pennsylvania. Almost every border state has a sales tax rate already greater than 6 percent. For example, some counties in New York have rates as high as 9.75 percent. In addition, most of the border states also tax a wider range of goods and services, or in the case of Delaware, rely on a gross receipts tax on goods and services.

Q. A Sales and Use Tax (SUT) shifts the burden, probably to businesses and those earning money, and inhibits investment in new businesses which create jobs, which produce the goods and provide the services we need, and which generate the revenue to finance necessary government services. Would centralizing the education bureaucracy then be counterproductive? The sales tax would be crushing, something like 23 percent and will fall on the same people the property tax does now. The productive people, especially young people looking for jobs, will leave the state as they are now doing and businesses, jobs, products and services will decline. Is this a reasonable and fair assessment?

A. This is "in the box" thinking and is very wrong. The Property Tax Independence Act has been studied in previous versions by Moody's Economy.com. This was the very first econometric study obtained on any proposed tax plan in the Pennsylvania Legislature. Its findings and the economic underpinnings of the Property Tax Independence Act prove just the opposite of these fears. As an example, the plan, if enacted, would create tremendous economic expansion and produce more than 130,000 NEW jobs in the first three years. The economic stimulus created by the elimination of the largest tax burden afflicting our citizens would put approximately $10 billion a year into the pockets of our people, all of which will either be spent, saved, or given away, all of which is good economically. The increased spending power will produce tremendous broad-based economic growth, which is exactly what cutting taxes always does.

Secondly, the greatest immediate economic stimulus will be realized through commercial investment because the value of all commercial property will skyrocket overnight at the signing of the legislation when the second largest business tax (property taxes) is eliminated. The return on investment will immediately go up substantially and for all intents and purposes would make our entire state a Keystone Opportunity Zone. Ask any real estate agent or commercial developer what this would do. There are many who are ready to buy the moment the Property Tax Independence Act makes its way to the governor.

Third, the Property Tax Independence Act broadens the base by including services as well, with key business exemptions remaining for certain services and for manufacturing and agriculture (as it is now). Under the SUT, everyone pays a little. The less you earn, the less you spend, and the less you spend the less you contribute. This fact, as well as the fact that the sales tax is fair and flexible, is why literally everyone who knows about the Property Tax Independence Act so strongly supports it.

Q. There are many goods and services in Pennsylvania that are not currently subject to the state sales tax. However, under the Property Tax Independence Act the businesses that provide these goods and services will now be required to become "tax collectors" for the Department of Revenue. Is this true?

A. Yes, it is true that some businesses that previously did not file with the state as sales tax collecting entities will now be required to do so. This again is a leveling of the playing field for businesses. However, many businesses are already required to submit the appropriate paperwork as they sell a combination of taxed and non-taxed items. It should also be noted that all businesses by law are paid 1 percent of all collections to offset the costs that are incurred as "tax collecting agents" for the Department of Revenue.

Q. It would appear that, for every household that pays less in total taxes, there is a household that will pay more in taxes. Is this true?

A. No, this is not necessarily true, but this is a frequently asked question about which many people are unclear. Right now in Pennsylvania, the burden of funding public education rests unevenly on those who own property. Anyone who does not own property does not proportionally contribute to public education funding. Therefore, in a general sense, those who rent and therefore do not pay a proportional share of education funding may see a net increase in cost. However, low-income renters will actually benefit from the plan with the swap from a local Earned Income Tax to the state-level Personal Income Tax, since low-income people earning less than $35,000 are forgiven the Personal Income Tax while they pay the local Earned income Tax from the first dollar earned.

The Property Tax Independence Act simply changes public education funding to a revenue stream that takes a little from everyone rather than a large amount from some. In a simple analogy, imagine a classroom of 30 students that is being asked by their teacher to pay for a $30 gift for their principal. You have the option of having three students pay $10 (similar to what happens under the current property tax system) or thirty students pay $1 (like what would happen under the Property Tax Independence Act). In the end, the same amount of revenue is raised without having to rely unfairly on a certain segment of the classroom (population).

In addition, those who never own property in Pennsylvania but still buy items in Pennsylvania, like tourists, would be contributing to fund public education.