May 15th Primary Ballot Question Should Fail

By Eric G. Zajac

The front-end personal income tax referendum should be rejected for now and revisted by the voters in a couple years.

The group, known as the Radnor Local Tax Commission, reluctantly recommended a personal income tax (PIT) of 0.07 %, the lowest rate available for that type of tax, to raise the minimum revenue that would lower property taxes.

The recommendation was made reluctantly because a majority of the Tax Commission members preferred the status quo to the Act 1 referenda options.

We believe Radnor should say no to the referendum question, and urge voters to reject it.

Act 1 was passed during an election year. It was intended to relieve seniors with limited means and fixed incomes from their increasing property tax burden. Property taxes have been increasing here in Radnor and elsewhere at rates higher than inflation. Act 1 was hailed as sorely needed property tax "relief" for those seniors legitimately worried that they would not be able to afford to stay in their homes because of increasing taxes.

It's hard to imagine a more laudable goal. Upon closer examination, however, here in Radnor there would be more losers than winners under the Act 1 front-end referendum.

First, let's consider those seniors on fixed incomes. While Social Security retirement benefits, IRA distributions, and 401(k) distributions would be exempt from the tax shift, many other forms of investment income, such as capital gains, dividends, and interest income, would be taxable forms of personal income under the referendum proposal. For those seniors on fixed incomes who would truly benefit -- and there are some -- any reduction in property taxes is likely to be only in the hundreds of dollars. When one actually crunches the numbers, the reduction in property taxes for this group is underwhelming.

Next, all renters would be losers, including seniors. Only qualified homeowners would receive a reduction in property taxes. Commercial property, including apartment complexes, is ineligible. As much as 37% of Radnor residents are renters. They include students, those who cannot afford to buy, and seniors downsizing and/or living on fixed incomes.

The fact is rent here is high. Tenants do indirectly pay property taxes so the passage of the referendum would in effect be a tax increase on this very large group of Radnorites. Their home-owner neighbors could get a reduction in property taxes and would be equally taxed if their personal incomes are the same, but the renters would receive no off-set. That's hardly fair considering that the apartment owner who gets no Act 1 property tax reduction is already passing the cost of those taxes onto the tenants.

Next, many taxpayers will actually see a net increase in their taxes overall, especially those who earn income outside Philadelphia. The median income here is about $75,000. The more one makes above the median, the more likely one is to be a net loser under the Act 1 scenario. Personal income taxes would increase disproportionately to any reduction in property taxes for approximately 40% of Radnor taxpayers.

Taxpayers who pay Philadelphia wage taxes would end up benefiting. Because the Philly wage tax is so high, they would get a tax credit that would exceed their exposure to an increased PIT. A person working in Blue Bell could end up paying a PIT that the same person working in Philadelphia would not have to pay.

Then there's the burden of administering and collecting the tax. This obligation will be placed on the School District. It has been estimated that the actual collection rate could be as low as 40% of the projected tax collection. Although some of the taxes collected can be used to pay for the costs of administration, the tax shift would only already add to a long list of school district administration responsibilities that have nothing to do with the delivery of education.

Finally, whether the "front-end" referendum passes or not, the "back-end" referendum possibilities remain. Any property tax increases above the annual cap (and not subject to exception) would still require voter approval. Likewise, minimal tax reductions realized from gaming revenue will apply regardless of voter approval of the May 15th referendum.

If this all sounds overly complicated, that's because it is. Just as with Act 72, the Act 1 front-end referendum simply isn't worth it to Radnor as a whole.

The good news -- if there is any + is that taxpayers will have the choice of revisiting the issue in 2009. Act 1 is not a one-time offer; it permits voters a second look after two years.

It is against conventional wisdom to buy a brand new car the first year the model is released. Best to allow some time to get the bugs out. The same is true with the Act 1 front-end referendum. If township residents and the Board find the product more attractive after it has been in use for a couple of years, we will have the opportunity to reconsider the earned or personal income tax options.

Hopefully so will our friends in Harrisburg.