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The ins and outs of tax 'reform'

| Sunday, Oct. 13, 2002

HARRISBURG - When a special session on local tax reform began Sept. 4 there were widespread questions about whether the Republican majority controlling the state Legislature would produce a plan.

After all, the session had been initiated by a Democrat state senator seeking re-election — Lisa Boscola, of Northampton County. Boscola used an obscure provision of the state Constitution enabling a majority of lawmakers to call a special session. Some Republicans on the hot seat in the Nov. 5 election — hounded by editorial boards in their districts — had little choice but to sign on.

Would the Republican leaders of the House and Senate produce a plan before the election or develop one in the lame-duck session after the election?

That answer became clearer last week when Senate Republicans produced a local tax-shifting bill founded on the concept of voter choice. It was reported out of committee on the day senators left the Capitol, essentially until Nov. 12. It will be on the Senate calendar when lawmakers return for a lame-duck session.

It may be voted on then or it might wait till 2003.

What was significant about the legislation was that it began to draw a line in the sand over what's acceptable and what's not, in so-called local tax reform. It certainly is not a unanimous position in the Senate GOP Caucus, but it represents a broad cross-section. The House GOP leadership apparently is on the same wavelength – at least in concept.

While Democrats and even some Republicans are touting bills to raise the state income tax to fund property tax cuts, the unstated message in S.B. 374 was clear:

  • Local wage taxes, not state personal income taxes, should be used as the source for trade-offs in school real estate taxes.

  • That should only occur if voters in each school district approve it.

  • Voters should have the opportunity to make that choice. School boards shouldn't be able to block a referendum.

  • A back-end referendum is needed to prevent future tax hikes, after initial tax cuts go through.

  • So-called inequity among school district spending should be addressed on another day. Some believe it shouldn't even be an issue. School spending essentially is a function of local wealth.

    The state already pours tons more money into poorer districts than wealthier ones.

    This is anathema to many Democrats, who contend the bill is not real tax reform. They argue inherently that a fairer taxing system must be accompanied by gazillions more in state dollars to make up for lower spending per pupil in poorer districts. It is not strictly a partisan issue, however. Lawmakers are all over the map on the issues of state vs. local revenue making up losses in real estate tax revenue and on addressing equity.

    In the governor's race, Republican Mike Fisher has embraced the same concept: a law requiring school districts to place the tax-shifting question before the voters. His plan differs in some respects. It sets a ceiling of 1.5 percent in the local wage tax, for instance. The Senate GOP plan uses a range from 1 percent to 5 percent, depending on the district.

    Democrat Ed Rendell's plan differs dramatically. Rendell says equity must be addressed as part of the plan. Rendell says he is not a fan of voter referendum — that elected officials should make the tough choices. He does not rule out the possibility of a back-end referendum or some mechanism to prevent taxes from going up again.

    Rendell proposes paying for his plan by legalizing slots at tracks and $1 billion in unspecified cuts in state spending. That's $1.5 million at best. More revenue realistically would be needed to tackle the equity issue and it will come at a time when the state faces a potential $2 billion revenue shortfall next year.

    The tax-shifting plan emerging in Harrisburg is helping to define differences. Should tax shifting be a state decision or a choice made by local voters, should a state personal income tax or a local wage tax be used to pay for the shift and is equity part of the final deal or not?

    One footnote to the unveiling of S.B. 374, called “The Taxpayer Choice Act.” It was brought out of the Rules Committee as a regular session bill, not a special session bill, suggesting perhaps that a special session was not really needed.

    It was, in part, a tweak at Boscola who set the special session in motion.

    She and others would argue that having a special session focused attention on the problem.

    To a certain extent that's true.

    What was clear last week was that many Republicans in the Legislature will go only so far to embrace tax-shifting. Voter involvement is one of the key ingredients.

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