Property Tax "Circuit Breaker"
Would Reduce Middle Class Tax Burden

New Proposal for the Kesytone Research Center
Would Also Ease Public School Funding Crisis

Harrisburg, March 6 - Property tax would be reduced for taxpayers least able to pay and school funding stabilized under a new property tax "circuit breaker" proposed today by the Keystone Research Center.

In one variation of the circuit breaker, households would receive rebates from the state if their local property taxes exceeded 3.5 percent of their annual incomes. The rebates would be targeted at households with incomes of $50,000 or less, and the rebate would be capped at $500.

This property tax circuit breaker would result in average rebates of $415 to an estimated 1.62 million middle-class and low-income households.

According to the proposal's authors, Stephen Herzenberg, an economist and executive director of the Harrisburg-based Keystone Research Center, and Eileen Healy McNulty, former Pennsylvania Secretary of Revenue, the circuit breaker proposal would help remedy two related problems.

First, the rebates would provide direct relief for families now most burdened by property taxes.

Second, the rebates would help stabilize school funding. "Over the last decade, school districts with lower property values, have faced a dilemma," McNulty explained.

"If school districts try to maintain affordable property tax rates, they can't raise enough money to maintain quality schools. If districts raise taxes to improve quality they may unduly burden some residents. Using state dollars to deliver targeted property tax relief will make it easier to provide local revenues for schools in an equitable way."

The KRC proposal suggests that a circuit breaker could also be used in combination with an overall shift in education funding to the state.

"A generous circuit breaker and a higher income tax," Herzenberg adds, "would insure adequate funding for all school districts without raising taxes on the middle class." This combination, he says, would have the added benefit of reducing sprawl because people would feel less need to leave older school districts for new "exurbs".

The KRC briefing paper proposing property tax relief estimates the benefits of a variety of stand-alone circuit breakers. These variations offer total rebates ranging from $288 million to $1.2 billion. In all cases examined, the lowest three fifths of the income distribution obtain 65 to 90 percent of the tax relief benefits. Middle and some upper income taxpayers benefit more when rebates are offered to households with income of up to $100,000.

Several states, including Maryland and New York have property tax rebate programs that are not limited to senior citizens. Michigan combines a property tax circuit breaker program with a recent shift to state funding of schools.

The complete KRC tax rebate proposal is available at the Keystone Research Center Web site www.keystoneresearch.org.

Contact
David Bradley 717-255-7158
dbradley@keystoneresearch.org

Peter Wiley
570-522-0738
press@keystoneresearch.org