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From Governing’s Supplemental information | Introduction
The tax system is no exception. The last significant structural change was the passage of an income tax and lottery in the early 1970s. Aside from that, the rules aren’t too different from what they were when gubernatorial candidates wore derby hats. “The tax system and the sales tax were written 50 or more years ago, so they are therefore not particularly sensitive to a changing economy,” says Karen Miller, executive director of the Pennsylvania Economy League. Some of the symptoms: bank taxes have not kept pace with the changing nature of financial institutions; business taxes, while responsible for a declining share of revenues, are high, perhaps counterproductively so; and the sales tax base is narrow.
And even though the state enacted its income tax more than three decades ago, the rates have hovered between 2 and 3 percent. The rate has to be a flat one because of Pennsylvania’s “uniformity clause,” a 1923 constitutional amendment requiring that “all taxes shall be uniform, upon the same class of subjects.” This kept the state from enacting a graduated income tax or even from linking up with the federal revenue code, which the Pennsylvania Supreme Court declared insufficiently uniform as well. The silver lining in this cloud of fiscal nostalgia is that the state hasn’t been totally clobbered by the current economic downturn. The $1 billion gap it faces for next year’s $21 billion budget is a challenge, but nowhere near the problem faced by the likes of California, Massachusetts, Minnesota or New York. In order to reduce the regressivity of the income tax, a state law shields a portion of the income of less-affluent citizens. A family of four with an annual income of $31,000 pays no income tax in Pennsylvania. Separate laws prevent taxation on pensions and all other retirement income — a popular benefit in a state with a huge elderly population, but also a questionable perk for many affluent senior citizens. The most serious troubles in Pennsylvania’s tax system are in the towns, cities and counties, where there’s an ingrained cultural tradition of strong local control. Some 2,566 municipalities, 501 school districts and 67 counties have a legal right to levy taxes. If you want to become a tax collector, this is the place to practice your profession. But other than serving as a source of employment, this reliance on local taxation isn’t very functional. Pennsylvania has taken advantage of the local-control ethos to reduce the state share of education funding to only 35 percent of the total. That’s not enough to support schools very well in the districts where local fiscal capacity is low. And it forces the property tax in many jurisdictions to an uncomfortably high level. “Sluggish state aid to education, coupled with tough unions and weak-kneed school boards, means that local real estate taxes must rise,” says Robert Strauss, a professor at Carnegie Mellon University. Technically, there is a cap on school property taxes, but it is sieve-like. Any increase in costs related to teacher pay, for example, can be passed along in higher school district taxes. When the legislature decided to increase teachers’ pension benefits in 2000, school district taxes had to support that change, too. Actually, though, the most serious problem with property taxes isn’t the rates but the local failure to conduct reappraisals fairly and at regular intervals. Most states have set up their own machinery to ensure that this is done, but the Keystone State is not one of them. Some Pennsylvania counties have gone decades without re-appraising properties. That means there are substantial numbers of residents who are paying far less than they should — and others who are paying far more. The legislature held a special session last November to try to resolve some of these issues, but it ended without any clear recommendations for change. In fact, efforts to reform the property tax system have been underway for more than 30 years. In 1989, then-Governor Robert Casey backed a referendum to shift the burden of funding schools to the state income tax and away from school property taxes. It failed by an 80-to-20 margin. The current governor, Edward Rendell, has also promised property tax relief, and has put his hopes in slot machine revenue rather than taking on a revision of the system overall. On the administrative side, Pennsylvania is plagued by a cumbersome appeals process. There is no independent tax court, and two levels of internal administrative jurisdiction have to be climbed before an unhappy taxpayer can proceed to the regular state courts. “It’s too long and too expensive,” says Dan Hassell, deputy secretary in the Department of Revenue. Otherwise, the department is well managed, with good technological innovation, an emphasis on training and an ongoing effort to make tax filing and communication easier for both citizens and businesses. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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ennsylvania doesn’t take to change easily. Some 78 percent of current Pennsylvanians were born in the state — only Louisiana has more native-born residents. Many of the current leaders regard new ideas in governance as nothing more than management fads (of course, they’re sometimes right). A few of them joke that the state slogan should be: “Pennsylvania: We’ve always done it this way.”