Thursday, May 25, 2006

Swannomics 101


Lynn Swann promised to reveal a comprehensive property tax reform package and darned if he didn't deliver.

In a speech Monday in Harrisburg, he trotted out his proposal, a complicated affair that would (to oversimplify) do two things:

* Give taxpayers immediate relief by dipping into the state's projected revenue surplus to give them partial rebates on their property taxes.

* Give taxpayers long-term relief by substituting the current property tax system with one that, in effect, freezes taxes until a home changes hands.

Here's a Post-Gazette story on the plan. Here's a day-after piece that AP did. And, if you want to get into the nitty gritty, here is the Swann campaign outline of the proposal.

Swann's idea has a pie-in-the-sky aspect to it, because it would require amending the state Constitution. To do that, the proposed amendment must pass two consecutive sessions of the legislature, then be approved by the voters in a referendum. In the words, the earliest it could go on the ballot is sometime in 2009.

The most radical part of the Swann plan would be to shift the way property taxes are levied: from one based on the market value of a home to one based on the purchase price of a home.

I can explain it thusly:

If you buy a home for $250,000 under the plan, you will pay one to two percent of the purchase price (to use the 2% rate, $5,000) in taxes each year, but the total won't change much at all.

In a sense, it caps property taxes for owners of existing homes, ala California's Proposition 13.

What stands in the way of Swann's proposal becoming law? The Constitution's uniformity clause, which forbids tax rates from varying among the same class of taxpayers. (It's why we have a flat income tax, instead of a graduated one.)

The uniformity clause will have to be amended because the Swann plan will result in wide variations in property taxes paid.

Example: Suppose you bought your house 20 years ago for $70,000. Your property tax -- under the Swann plan -- would be $1,400 a year (using the 2% rate as an example.)

Suppose you sell your house for $300,000. The new owners will pay 2% of his purchase price, in this case $6,000 a year in property taxes.

In other words, you'll have blocks of identical houses where one (longterm) owner will pay a fraction of what other (newer) owners pay.

Depending upon your point of view, the tax is either a great deal (for long-time homeowners) or inequitable and unfair (for recent buyers).

Swann's plan also would cap local spending on schools to an annual increase of 3%, thus reducing the pressure to increase taxes.

Will it ever fly? Probably not. But, it does give Swann the right to say: "I have a plan that will reduce property taxes" and that serves his needs for now.

7 Comments:

Anonymous Anonymous said...

This is just another thing to add to the woes of recent graduates in debt who wish to purchase a house in there lifetime. I already cant see being able to afford a family sized home with the way the market is. That is just based on price and doesnt even begin to include taxes. O My.

4:01 PM  
Anonymous Anonymous said...

Can anyone remember what the name of Bushes housing plan was a few years ago? I know he wanted everyone to be able to afford a house, and the feds dropped interest rate, and the housing boom began, and everyone started buying houses, toll bros got rich, really really rich, and now a four bedroom in Marple area is over 500K, and if your from one of the lower income area and accumilate educational debt you can forget about buying a house. Damn the good ole days.

4:06 PM  
Anonymous phillydem said...

Capping local gov't spending? That should sit well with the many, many, many residents we have in this state who live in towns, townships and boroughs, some as tiny as a couple thousand people, and believe in their God-given right to run their own municipality however they darn well please. Look no further than how they balked at opting into Act 72 because of the mandatory spending referendum.

And, what happens to municipalities that have their police, fire and/or teacher contracts determined at binding arbitration? Will the contract awards be capped at 3% a year? I know in Philadelphia, the police and fire arbitrators rarely take the city's financial situation into consideration in their awards.

4:45 PM  
Anonymous Anonymous said...

I can't believe you guys are actually taking the time to discuss this plan as if it was meant to become reality, or even to make sense. It isn't.

It's like being assigned to write a thousand-word essay and turning in a paper that has "Here is my essay" written 250 times. It fulfills the requirements but in a totally absurd way.

Swann now has a tax plan. He knows no one in the state is going to take it seriously. But he also knows there's not a serious plan anywhere else, either.

There is no political solution to this problem given the current climate in this state and somebody ought to have the balls to say so.

8:32 PM  
Anonymous Anonymous said...

The the "anonymous" who's complaining about this legislation affecting his/her ability to purchase a home out of college: wrong forum. This legislation doesn't really affect you. Go bitch somewhere else.

On the actual subject at hand, what's "unfair" to one is "fair" to another. If you look at it from a long term resident's point of view (think working class folks in a gentrifying Philadelphia neighborhood, for instance), the newcomers are creating an unfair situation by causing property values to skyrocket that would've remained stable if the newcomers hadn't move in.

I'm not saying that I have anything against the newcomers. After all, somebody has to move in and occupy all the abandoned houses. All I'm saying is that, while not perfect, this system would remedy a large existing injustice while introducing what I consider to be a much smaller one (people buying know exactly what they're getting into, taxes and all, which is more than can be said about people being caught unaware by a wave of gentrification).

reassessing property taxes upon sale, as long as the prospective buyers are notified of the new amount before closing, should also keep housing prices from rising as much as they have, at least in Philadelphia, by shifting more of the cost of ownership to taxes and away from mortgage payments.

2:13 PM  
Anonymous DC said...

I can't believe that new residents buying into markets and raising the assessment values in neighborhoods can be seen as "unfair" by anyone who leans Republican.

Isn't this one of the simplest examples of supply and demand? "I like this neighborhood, I want to move there."

How is this unfair? You own a HOME, you do not own a neighborhood. I do not shed a tear for someone who complains about their home increasing in value. There are many options out there for those with low incomes to make good on their property taxes.

2:59 PM  
Blogger Jim in West Chester said...

It's always the latest arrivals that want to:
a.) lower the taxes;
b.) stop any more new development; c.) complain about the deer eating their fancy new shrubs.

9:53 PM  

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