RSS
Home
GOP Contract with Lehigh County---County Sales tax option: Part 2
Print
Email
RSS
Subscribe
This is part two (click here for part 1) of the discussion on the County Option Sales Tax—the third plank in the GOP’s Contract with Lehigh County. In that plank, they oppose the tax.
In Pennsylvania, the state gets fund from individuals chiefly through the income tax and sales tax. School districts rely on property tax for the most part, while municipal governments look to earned income taxes, transfer taxes and some property tax.
County government typically raises its funds from property tax and fees.
Tax theory has often been likened to “squeezing a balloon.” The total amount to be collected does not change but the way in which it is collected may.
If taxes are squeezed (or reduced in one place) they bulge (or increase) in another.
A movement was started in the Lehigh Valley, mostly by a group of business and civic leaders, to get authority to levy a 1% sales tax in Lehigh and Northampton Counties as a way, in part, to reduce municipal property taxes. Under the Lehigh Valley proposal, an estimated $70 million in taxes would be raised each year. Two million dollars would go to the county general funds in Lehigh and Northampton Counties.
A total of $52 million would go to municipal government, with $28 million providing property tax relief for those local governments collecting a property tax. An additional $19 million would be distributed in the form of revenue sharing, but without mandated property tax relief and $5 million would compensate municipalities for tax-exempt facilities within their borders. Some like Hanover Township, home to LVIA, have substantial untaxed property.
Another $16 million (plus 25% of future increases in the amount collected) would go to intergovernmental efforts with the local COGS receiving $2 million plus 25% of the increased collections and $14 million going to a Regional Asset Board.
Note that this mandates property tax relief in the first year equal to 40% of the amount collected. The proposal, known as “1% for the Valley,” allocates the revenue raised 40% to property tax relief, 40% to municipal services and 20% to intergovernmental cooperation. In other words, it is a tax increase for 60% of the amount collected or an estimated $42 million. Since municipal and county government could reinstate the taxes in the future, the whole $70 million could soon be a tax increase.
The Lehigh Valley proposal was pitched to lawmakers last year. What came from Harrisburg was HB 1682, the County and Municipal Property Tax Relief and Collaborative Services Act. HB 1682 is similar in that counties could elect to impose a 1% sales tax but it differs in how the money is spent.
It requires that 60% go to property tax relief. The counties get 50% of the pie or $35 million under this proposal, with $21 million slated for property tax relief and $14 million for general services. Municipal government gets $28 million or $24 million less than under the Lehigh Valley proposal. The municipal share is allocated as $16.2 million for property tax relief and $11.8 million for revenue sharing. The remaining $7 million goes to shared services. Once again, it leaves the door open for those tax reductions to be reversed after year 1!
The proposal has gained the support of the Local Government Association and the County Commissioners Association of Pennsylvania. It also has the endorsement of the Lehigh Valley leaders, despite the changes to the allocation of the money raised. There has been some talk that if the county sales tax option is enacted that home rule counties, like Lehigh County, might be allowed in the future, under the home rule laws, to adopt a different allocation of funds.
Municipal governments have been hard hit by the recession, especially in the collection of earned income taxes. This can be a real issue in affluent communities, especially those who have a large population of executives who have stock-based and incentive compensation.
Counties rely more heavily on the property tax. Collections of property tax remain fairly stable even in bad times, an argument often used by those who favor the property tax as the way to fund the schools. As discussed in prior articles, school districts are pretty happy right now that they have a rich flow of property tax receipts while the state holds up funding due to the budget mess.
One of my frequent arguments against a sales tax is that it can be regressive and tax poorer people more heavily (as a percentage of income) than wealthier people. Those supporting the Pennsylvania proposal argue that the exclusion for food and clothing in the Pennsylvania sales tax law eliminates the regressive impact. Even the Community Action Committee of the Lehigh Valley, has, in fact, been a major supporter of the proposal. I think the reliance on the exceptions is misplaced. The regressive nature of a consumption tax cannot be disregarded.
A bigger complaint is that the new tax is a new tax. It is revenue neutral. Revenue neutrality means that the amount of tax raised stays the same but the sources are changed. Neither the Lehigh Valley proposal nor HB 1682 provides for a commensurate reduction of the property tax for the full amount of the sales tax. In both cases, in fact, the 40% or 60% tax reduction need not be permanent.
If HB 1682 or something like it is enacted, each county could choose whether or not to impose the sales tax. One concern expressed is that businesses that border a county that does not have the tax might be at a disadvantage but supporters, including business owners, have not seen that as an issue.
As it would technically be a sales and use tax enactment, those who bought a taxable item in one county which did not have a sales tax for use in another county which had the sales tax would be responsible for self-assessing the use tax. Of course, all you reading this routinely self-assess use tax if you buy something in Delaware (which has no sales tax) while on vacation and then bring it into Pennsylvania, just as you do with untaxed internet purchases.
The proponents of the local option tax point out that the Pennsylvania Department of Revenue already audits large out-of-state purchases for use tax compliance and that there has been some success in enforcing compliance with the Philadelphia and Alleghany County taxes.
In the Lehigh County election, Scott Ott, the Republican candidate for county executive, announced on July 27 that he would not impose the tax if elected. He called upon Don Cunningham, his Democratic opponent, to join him in his pledge. Cunningham has not yet announced if he will join Ott in opposing the tax.
The Republican challenger said “I’m categorically against new taxes. People in Lehigh County are already taxed too much.”
In his press release, Ott noted that the sales tax does not reduce the property tax on a one-to-one basis. Since the increase in sales tax does not guarantee a dollar for dollar reduction in property taxes, Ott said, “It’s nothing but a new way for government to weasel into your wallet.”
The 5 GOP candidates for county commissioner joined Ott in opposing the tax in their Contract with Lehigh County. In announcing this, the Republicans branded the idea a Democratic proposal. True, Rendell proposed it in his budget, but it has bipartisan support in its Lehigh Valley incubator and it should not be seen as purely a Democratic idea.
Regardless, it is opposed by the GOP commissioner candidates and by incumbent commissioner Dean Browning.
Lehigh County
Related Articles:
Comments
Rep. Charlie Dent, who represents Pennsylvania’s 15th Congressional District, held a news conference yesterday for local press. The Morning …
As I have lamented before, my political party is seen as the party of negatives. If you ask anyone to describe a Republican you are likely to hear …
- IssuesPA
- League of Women Voters of Lehigh County
- Lehigh County Board of Commissioners
- Lehigh County Website Campaign Finance Reports
- Lehigh Valley Ramblings (Bernie O'Hare)
- No Kill Lehigh Valley
- Northern Lehigh Valley Logic
- Pennsylvania Department of Education
- Thomas (Federal Legislation Search)
- Times On-Line (parent of my papers)
