Property Tax Crisis in Pennsylvania

Dan Sullivan

[Reprinted from GroundSwell, May-June 2006]

Long-gathering anti-property-tax momentum has come to a head this year in Pennsylvania. It is an election year for the governor, all the state representatives, and half the state senators; candidates are caught up in trying to prove that they are more strongly opposed to property tax than their opponents are.

Besides the threat this poses to the 21 Pennsylvania taxing jurisdictions (mostly cities) using land value tax, shifting away from property tax could damage Pennsylvania's economy and exacerbate the growing divide between the propertied and the landless here. Still, opposing property tax has become so popular that rational concerns have been swept aside. Land value tax advocates are just beginning to come to grips with this crisis.

The Governor's Race

Ed Rendell, the incumbent Democrat, has never been a friend of land value tax, favoring the corporate-welfare approach to economic development (just as he had when he was mayor of Philadelphia). He has championed a bill for property tax relief that will undoubtedly pass. Basically, it gives aid to school districts from gambling revenues, contingent on their subjecting themselves to restrictions that would inhibit their ability to raise property taxes in the future. An earlier proposal with more stringent restrictions passed a year ago, but so few school districts opted into the plan that a newer bill has been passed with milder restrictions. The only good thing to say about Rendell's plan is that other plans are much worse.

The Republican candidate is Lynn Swann, a Hall of Fame wide receiver for the Pittsburgh Steelers during their Superbowl dynasty in the 1970s. Swann proposed a reform modeled after California's Proposition 13, which ties assessments to the original purchase price, cuts property tax rates, and limits both individual assessment increases and jurisdictions' ability to increase property tax revenues. Swann's proposal has not caught on, even with his Republican colleagues in the legislature. Still, he will undoubtedly attack Rendell for not having a stronger anti-property-tax measure. The lack of support for Swann's plan by the Republican legislators would have been fortunate except that the they have something much worse in mind -- replacing local property taxes with statewide taxes. Sales taxes are the favorite choice, but some legislators, under pressure from frightened retailers, have advocated income taxes instead.

The independent candidate, Russ Diamond, is championing the worst plan of all -- to completely replace property tax with sales tax. While Diamond has no chance of winning, similar plans are being pushed hard by a number of legislators, mostly Republican.

Bipartisan Lemmings

Republicans do not have a monopoly on destructive pandering to the anti-property-tax crowd; many Democrats are doing the same thing. Republicans are more aggressive about it, probably because it plays better to their constituents. Rather than a fight between right and left or Republicans and Democrats, it is a fight between pandering and principle, between politics and economics.

Ironically, it was the Republican members of Allegheny County Council (Greater Pittsburgh) who stood up as a block for proper reassessment even though their own council districts were the wealthier districts, where assessments were going up, and even though Republican communities within all the districts got the biggest assessment increases. It was the county Democrats who defied the law and sold out their own constituents in order to pander to a vocal (and monied) minority. Not surprisingly, the Republicans lost seats on county council.

For a while, Democrat Bill Robinson, a longtime champion of land value tax, joined with the Republicans and blocked the Democrats from degrading the county's assessment process. He eventually caved under relentless pressure from Democratic Party leaders.

A Movement That's "Mad As Hell"

The most vocal opponents of abolishing property taxes have not been leaders of large landholding corporations (the real winners under almost any plan on the table). Rather, it has been angry citizens, most of them elderly, fueled by opportunists who fancy themselves champions of the people and who assume something to be true if it gets a good audience response. Spokespeople for these organizations get away with making outrageously false statements because the elderly have become sacred cows in Pennsylvania (which is second only to Florida in its percentage of elderly people), and nobody wants to stand up to elderly citizens.

Here are some of the more egregious lies:

• * They accused counties of artificially raising assessments in order to avoid raising tax rates, even though counties have actually been failing to reassess as required by law, and have raised rates instead.

  * They accused Allegheny County of driving home owners out of their homes when the county foreclosed on 750 properties, all of them residential. Actually, only 96 properties were tax sales; the rest were foreclosed by creditors. Most owners of the 96 made payment arrangements, so very few were actually taken by the sheriff. Almost all of the ones taken were absentee owned, and quite a few had been long vacant.

  * A recent article quoted a leader of one of these groups as saying that, because of property tax, houses in her municipality were either not selling or selling for less money. However, data from the State Tax Equalization Board shows that property values in her municipality were not only rising, but rising much faster than values in neighboring Pittsburgh, which has a lower property tax and a higher income tax.

  * Several conservative legislators have charged property tax with being "un-American," violating the principles of our founding fathers, even though property tax was a distinctly American response to prevent the landed aristocracy of Europe from being replicated here. Our most respected founding fathers, including William Penn, Thomas Jefferson, Tom Paine and Ben Franklin, explicitly championed real estate taxes.

Although the proposals advocated (other than by Lynn Swann) are not modeled after Proposition 13, the "mad as hell" campaign style is very much like that of Prop 13's founder, Howard Jarvis. His post-victory book was titled I'm Mad as Hell. It, and the campaign he led, was patterned after the movie, Network, in which a bombastic (and psychotic) newscaster made inflammatory speeches to his audience. The newscaster's shining moment was when he persuaded thousands of Los Angeles viewers to open the windows of their apartment buildings and shout to each other, "I'm mad as hell, and I'm not going to take it any more." Jarvis loved that scene and incorporated the newscaster's approach into his campaign.

The point of Network had actually been to show how destructive to society it is when cynical manipulators use misguided attention-seekers as pawns. That point was lost on Jarvis and his emulators. Indeed, the popular Pennsylvania group "Stop Taxing Our Properties," which has perhaps the worst grasp of economic reality and the most contempt for opposing viewpoints of the anti-property-tax bunch, was started by a longtime Pittsburgh talk-show host upon his retirement. After years of his and his listeners' repeating misinformation back and forth to each other until it sounded like Gospel to them, he launched the reform his call-in "experts" had sold to one another. It was indeed the mad leading the mad.

The Fairy-Tale Tax Campaign

The anti-property-tax movement has coalesced with "The Fair Tax Campaign," which began by advocating a shift from federal income tax to federal sales tax. This campaign is based on a web of more professionally contrived and sophisticated deceptions. Elaborate fairy tales have been concocted about how much money sales taxes would raise, about how one did not have to pay the tax if one did not buy anything, etc.

Sales tax is popular with wealthier conservatives who spend only a fraction of their income on consumer purchases and acquire income producing assets with the rest. Apart from poll (head) taxes, sales tax is the most regressive tax ever devised. It is also destructive to competition, as new businesses lose the advantage of not paying income tax during the initial years before their first net profits.

Although The Fair Tax Campaign has fizzled at the national level, it has found new life as an alternative to property tax. While a high national sales tax is a bad enough idea, Pennsylvania's shifting to a heavier sales tax would be economic suicide. The Federal government can at least use tariffs to tax imports at the same level it taxes domestic sales, but states cannot tax items imported from other states.

Even the 6% sales tax Pennsylvania already levies makes us lose business to Delaware, which has no sales tax at all. The mapping program Google Earth shows only three shopping malls within a retail "dead zone" that extends fifteen miles into the Pennsylvania side of the Delaware border, but shows dozens of malls concentrated near the border on the Delaware side. Thousands of Philadelphians drive through this dead zone every weekend to shop in Delaware. A substantial shift from property tax to sales tax would destroy what little retail is left in the Pennsylvania city of Chester and extend the dead zone well into south and west Philadelphia.

Power Beyond Reason

Although The Center for the Study of Economics, led by Joshua Vincent, has had considerable success over the past three decades by reasoning directly with public officials, none of us are prepared for a statewide power struggle. Allentown, which adopted and retained land value tax in two referenda, is the only city which has seen a public campaign for land value tax.

However, broad constituencies are developing in opposition to features in the various schemes to replace property tax. These constituencies have power but little economic expertise about real estate taxes, while we have the expertise and little power. It is the perfect situation for serious organizing.

A Time for Saving Communities

Last fall, we formed Saving Communities to organize people to support measures that enhance "freedom, equality and respect for the commons." Although we prominently feature land value taxation, our mission is neither limited to a single issue nor focused on creating ideological single-taxers. Rather, it is to attract a broad base of support for winnable campaigns. Renowned real estate assessment expert Ted Gwartney is the president.

It will become a national or international organization, but our first campaign is to stop the erosion of property tax in Pennsylvania. We began by asking what kind of help we needed in order to win and who might give it to us, and then by asking what those people cared about and how our proposals address their concerns. We are online at http://savingcommunities.org.

Finding and developing leaders

Our first need was a core group of non-ideological leaders who were better able to relate to outsiders on their own terms than we are. I presented a series of topical seminars, each targeting a particular constituency. Emily Cleath, an experienced organizer, became excited by the potential impact of land value tax on issues she cares about. Emily is now our primary organizer, working without pay until we can raise enough money for salaries. Her credentials are impressive. With an MS degree in Public Policy and Management, she has researched, written and presented public policy news briefs, provided technical training and mentoring at several organizations, worked with neighborhood organizations on housing and crime issues, served as an intern with a Pittsburgh City Councilman, and worked her way up from organizing apprentice to lead campaign organizer in the Service Employees International Union.

A person of action, she did not wait to master the underlying theory. As soon as she saw that land value tax was an idea she wanted to support, she asked what we were going to do about it and what she could do to help. It was exactly the kind of attitude we were looking for. We got donations from local Georgists, most notably $1,000 from Harold Kyriazi, allowing us to print literature, letterhead and envelopes. When I traveled to Pennsylvania's capitol, Harrisburg, to line up support, my hotel bill was paid for by a libertarian acquaintance of Harold's who did not know much about what we were advocating, but who decided it must be worthwhile if Harold was involved.

The Founders' Plan

We labeled our proposal "The Founders' Plan" to emphasize that our plan is not a gimmick, but is based on what America's founders advocated. The plan has two planks, each of which are optional for each taxing jurisdiction.

One allows all taxing jurisdictions within the state to shift from property tax to land value tax. (We anticipate having to include a "farmers held harmless" provision that would let farmers pay the equivalent property tax if it is lower than their bill under a land value tax.)

The other allows each municipality to create a fund equal to the estimated amount of real estate tax collected from residents aged 65 and over. The fund would be distributed to these older residents on a per capita basis. This plank is modeled after a proposal by Tom Paine, considered the first social security plan ever proposed.

We produced a general brochure highlighting the advantages of our plan over other plans, and another explaining why our plan is the only plan in line with the principles of America's Founders [enclosed in this Groundswell issue]. We also have a draft of a brochure showing why our plan gives land-efficient small businesses a competitive advantage over large, inefficient corporations. We intend to make a special brochure targeted to each major interest group we identify.

Lobbying Lobbyists

People who do not normally pay attention to us are desperate for alternatives to what is now being proposed. A representative of the Pennsylvania School Boards Association said they would be particularly interested in the option of grants to the elderly, and all of the municipal associations are looking for alternatives that let them retain control over their taxing and budgeting processes. Ours is the only plan that does that.

Ours is also the only plan that calls for no increase in state subsidies. Merchant associations are so strongly opposed to state sales taxes that we expect less hostility from them than we would usually get. (Retailers often hold the most valuable land outside large central business districts, and most of them have parking lots.)

The Pennsylvania representative of the National Federation of Independent Businesses is most interested in our assertion that The Founders' Plan would give the competitive advantage back to small businesses. He wants all the documentation we can provide on that.

Although most of the plans we oppose are backed by conservative politicians, people at the conservative Commonwealth Foundation were as interested as anyone in our alternative. Their chief policy analyst, along with a research intern, met with me for two hours. They later asked about the endorsements by Tom Paine and Milton Friedman and about the source of the statistic that 3% of the landowners control 97% of the land.

Politicians Seeking Alternatives

Although the purpose of our trip to Harrisburg was to line up support rather than talk directly to politicians, we did visit with the staff of representative Dwight Evans of Philadelphia. Thanks to work done by Joshua Vincent and community leaders who themselves had been educated by Vincent, Evans already supports the land value tax option in Philadelphia.

Evans is a also a member of the Pennsylvania Legislative Black Caucus. I spoke to his staff about finding sponsors and supporters for our bill, and gave them copies of our paper, "Land and Tax Issues for the African American Community." That paper is online at: http://savingcommunities.org/issues/race.html

The easiest point to grasp, and for black leaders to take to their constituents, is that home ownership is much lower among blacks than among whites. What the other proposals have in common is that they give relief to home owners by increasing the tax burden on renters. Only The Founders' Plan gives relief to home owners and renters alike by shifting the tax burden to absentee landholders.

Evans's staff counseled me on how to pursue the issue. Among other things, they suggested that we draft a sample of the legislation we have in mind. They thought that the Legislative Black Caucus would indeed support the bill, and that other politicians would support it as well.

Adopting A Broad-Based Strategy

Although this is issue will be determined mostly by political clout, of which we have very little, we also have the only proposal with very little opposition. We must tap opposition to other plans to have serious impact.

Rather than asking land tax advocates from across the country to write to Pennsylvania legislators who, by now, don't care very much what people from outside their own state think anyhow, we are asking supporters from around the world to help us do broad-based organizing -- finding constituents who will help us fight against replacing property tax with sales and income taxes. Land value tax is offered, not as a utopian panacea, but merely as a better alternative than the plans they don't like. They don't have to learn about Henry George or the Law of Rent; they only have to learn enough to be on our side.

For example, we have a brochure and a web page explaining how reducing property tax gives a competitive edge to labor-efficient big businesses over land-efficient small businesses, and how our plan has the opposite effect. Wal-Mart, Home Depot and others are prime examples of land inefficiency. A team can get our message out to groups on the Internet by doing searches on "Wal-Mart," "Home Depot," "small business," "giant corporations," etc. This will turn up thousands of web sites, most of them sympathetic to shifting taxes off small business and onto big business. We can win support from the web site owners by writing personal, individualized notes to them.

A State-To-State Template

The anti-property-tax movement has been spreading from state to state, leaders in each state copying the efforts of the previous state. We have been studying prior struggles in other states, particularly in Alaska and Maine, where anti-property-tax referenda were defeated, to develop our own counterstrategy. If we succeed here, we can also campaign in other states and ultimately overturn anti-property-tax strongholds like Massachusetts, California and the South.

It is not going to be easy, but it can be done if we roll up our sleeves and do what it takes to get it done. As Henry George wrote:

How true is the old fable! The wagoner, whose wagon was stuck in the rut, knelt down and prayed to Jove to get it out. He might have prayed till the crack of doom, and the wagon would have stood there. This world -- God's world -- is not that kind of a world in which the repeating of words will get wagons out of mire or poverty out of slums. He who would pray with effect must work! -- Henry George, "Thy Kingdom Come"