Property Tax Relief in Pennsylvania: Not as Simple as It Sounds

May 6, 2005

A recent report from the Pennsylvania Economy League finds that Pennsylvania’s Homeowner Tax Relief Act will increase local tax complexity and compliance costs. The act allows school districts to use revenue from slot machines, which will be installed at racetracks and casinos and subject to a 34-percent tax, to lower local property taxes. Pennsylvanians are eagerly anticipating property tax relief, but they may not be prepared for the trade-offs, which include increases in earned income tax rates and increased complexity in an already-labyrinthine local tax system. According to the report:

Buried in Act 72, either explicitly or implicitly, are provisions that will add significantly to the number of tax rates. … For municipalities and school districts using new dollars to pay for services, the costs of collecting taxes will increase, leaving fewer funds for education, property tax reduction and other services. … These are costs that have an impact beyond dollars and cents for schools.

States are increasingly relying on gambling—both state-run lotteries and heavily taxed private gambling establishments—to raise revenue. This not only increases tax complexity; it also decreases transparency and neutrality. Using gambling taxes to lower property taxes merely shifts some of the tax burden from property owners to casino, racetrack and lottery patrons, while increasing the administrative costs of tax collection.

For more on tax complexity and compliance costs, see Special Report #114, The Cost of Complying with the Federal Income Tax.

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