We have been asked to study the property tax systems of several communities in Mercer County, Pennsylvania. Mercer County is located in the northwest corner of Pennsylvania. Historically, it has been the home of gritty factory towns, mining, and agriculture. Mercer County, PA has 19 municipalities, three of which are cities: Sharon, Hermitage, and Farrell. Like much of the industrial Midwest, community and individual prosperity peaked around 1960. As a result, the population has been in decline, from 127,000 in 1960 to around 110,0000 in 2022. Statewide, the PA population has increased by 12.4%, while Mercer’s has dropped by 8.5%.
North Adams is one of of dozens of similar towns spread across New England, and similar to small Pennsylvania manufacturing towns centered on steel, coal, and railroads. However, cities like North Adams, Lowell, Pawtucket, and others also produced a broader range of goods which supplied the world with textiles, clocks, brass, firearms, and 20th-century electronic components.
What happened in New England factory towns also happened in Pennsylvania towns and in other rustbelt towns. It’s an old story: factory closures or relocation combined with changes in global trading patterns. The result? Subsequent impoverishment and depopulation of communities.
CPTR is in accord with the basic rules of economics. Adam Smith’s so-called “canons of taxation” are a good jumping-off point for a fundamental understanding of taxation, whether that tax is progressive or conservative. As untrammeled monopolies gain more power in the post-political age, tax burdens inexorably are shifting to what we used to call the middle and working classes.
CPTR and its parent organizations have demonstrated how a property tax can be made progressive by using the land value tax. Why? Businesses and homeowners in the lower quintiles of value benefit from the tax shift. Why? The percentage of the building’s value to its land value is higher (though individual results may vary).
There’s also solid theoretical and empirical evidence that land value taxation turns a property tax into one that comports with principles of progressive taxation. In other words, a “progressive” tax is one in which the tax burden increases with income. As a result, high-income families pay a higher portion of the tax burden, while low- and middle-income taxpayers shoulder a relatively lower tax burden.
This is a generally accepted practice for income taxes (except in states with a flat (ergo regressive) income tax). “Flat” means one rate for every income level (though some states exempt the first several thousands of dollars in wages). “Regressive” means low-income/wealth taxpayers pay a relatively higher percentage of the tax burden. In contrast, middle- and high-income/wealth taxpayers shoulder a relatively small tax burden.
In a nation with so many problems, it can be jarring to be informed about issues from ‘on high.’ What’s not so harsh is finding practical solutions performed by people living with the pain. But, unfortunately, we have to come down to earth and to be grounded for that.
A case in point comes to us from the New York Times (the ‘on high’ bit) and the people in the trenches doing the hard but noble work (in this case, City Council in Boise, Idaho).