Budget Watch

With ongoing negotiations over the state budget focused on property tax cuts, and the State Senate taking up a bill to eliminate property taxes, this briefing paper compares property tax elimination with two more targeted approaches that would reduce, but not eliminate property taxes: the Republican proposal that passed the Pennsylvania House in May (House Bill 504) and Gov. Wolf’s original proposal from March.

We find that property tax elimination would raise taxes on the middle class to give wealthy homeowners and businesses in wealthy communities a tax break. Both targeted approaches would be better for the middle class, but the Wolf proposal would be the best for moderate-income homeowners and would also cut non-residential property taxes the most in lower-income communities, a potential boost to community revitalization.

Gov. Wolf and legislative leaders are currently negotiating over the terms of a plan to cut property taxes which would be financed by an increase in the state sales tax rate from 6% to 7.25%. This brief analyzes the size of the sales tax rate increase by income. It also compares that impact to how much different income groups would pay with an increase in the state personal income tax rate from 3.07% to 3.57%, as proposed by Gov. Wolf in October and rejected by the Republican legislative majority and nine Western Pennsylvania Democrats.

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