March 02, 2007

Act 1 of Pennsylvania – Property Tax Relief

Today’s post is regarding Act 1 of Pennsylvania, which is supposed to bring the taxpayers of Pennsylvania some property tax relief by shifting the taxes to an Earned Income Tax or a Personal Income Tax structure depending upon what the voters of the district decide in May of 2007.

Many people have asked me to make a recommendation if they should vote for this tax shift in May. I have created a spreadsheet for you to enter the numbers to calculate for yourself if the tax shift is in your best interest. The spreadsheet is located at Google Docs and Spreadsheets

Act 1 Analysis

To use the spreadsheet simply enter the new additional Earning Income or Personal Income tax, the estimated reduction in property taxes, and your salary. It will automatically calculate what you will save or (mostly pay) in taxes. It will also calculate a breakeven point which shows who benefits and who pays more in taxes.

If you cannot get the spreadsheet to work, don’t worry. It is easy to calculate your own analysis.

Take your salary and multiply it by the proposed additional tax rate then subtract the expected property tax reduction. This will be the amount of taxes you will pay.

The example below uses data for the Blacklick Valley School District, which was recently published in the Nanty Glo Journal Newspaper.

The proposed additional earned income tax rate is 0.2%.
The expected property tax reduction is $44.
I will assume a salary of $50,000 and $25,000.

$50,000 * 0.2% - $44 = $56
$25,000 * 0.2% - $44 = $6

What does this mean?
The person earning $50,000 will see their property taxes reduced by $44. Their income tax will increase by $100. Their net effect will be a $56 increase in taxes.

The person earning $25,000 will also see their property taxes reduced by $44. Their income tax will increase by $50. Their net effect will be a $6 increase in taxes.

Renters will not win, since they do not pay property taxes. They will simply pay more in Earned or Personal Income Taxes.

As more school districts release their ballot questions I may update the analysis for those schools or you can calculate the results and post them as a comment to this blog.

REMEMBER! This is a temporary “fix.” If an earned income or personal income tax is approved this year, that tax will not go away. It will still be there next year when your property taxes are raised again!

There is much more to Act 1 than what is mentioned here. That being said….

In my opinion, most people should probably not vote to raise the earned income tax or create a personal income tax. Even if you think you will benefit from it, it will most likely only be a temporary “benefit” to you.

Comments anyone? I am especially interested in hearing from people that fully support the tax shift!

UPDATE! Here is a link to a spreadsheet on PDE's web site regarding what your school district might be doing for Act 1.

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