Research & Commentary: Education Property Tax Reform

Published August 21, 2012

Several states—including Florida, Iowa, New Jersey, Pennsylvania, Texas, and Vermont—are currently discussing restructuring the property taxes that pay for education. Pennsylvania is considering perhaps the biggest change: eliminating property taxes in exchange for higher state income and sales taxes. Most local government schools get about half their revenue from property taxes.

Property tax elimination and certain other tax restructuring plans have supporters and critics across the political spectrum. Some conservatives support ending property taxes because the taxes require people to “rent” their property from the government. Some progressives support the change because they want only people with higher incomes to pay for all government services. Most voters support plans they think will lower their own taxes, but politicians know all tax changes will make some people pay more, thus potentially harming their re-election chances.

Free-market proponents advocate taxing in the least complicated and most equal manner possible, arguing this is the fairest policy, gives everyone “skin in the game,” and reduces tax barriers to economic opportunity. They also recommend states limit how fast and high taxes and spending can increase, because profligate and debt-financed spending is the cause of current state financial crises and because these limits allow citizens to plan their finances in a stable tax environment.

They also note education spending has increased far faster than student enrollment in almost every state, yet research shows tax-and-spend education policies do not improve student outcomes. Offering families school choice is a demonstrated way to reduce state education expenditures—and thus burdensome taxes—while creating better education opportunities and outcomes for students.

The following documents offer more information about property tax reforms.


Scott Hodge on Fox Business: The Failure of Measure 2 in North Dakota
Tax Foundation President Scott Hodge discusses why voters are rejecting tax hikes across the country but North Dakota voters overwhelmingly voted against a measure to eliminate local property taxes and replace them with statewide taxes. He says voters dislike high taxes but like the basic services local property taxes often provide—garbage collection, firefighters, and the like—and are leery of losing local control over their tax rates by substituting state-level taxes such as higher income or sales taxes.

Property Tax Reform Long Overdue in Pa.
This editorial from the Delaware County Daily Times outlines the tradeoffs at stake as state lawmakers again consider whether to reduce or eliminate property taxes while increasing sales and income taxes to make up a similar amount of revenue. Every change in tax policy creates winners and losers, and politicians want to avoid negative backlash from the losers. Pennsylvania lawmakers have considered the problem for 30 years, the paper’s editors write, and now it’s time to man up and take action.

School Property Tax Reform Must Start with Cost Containment
A central reason school property taxes have become such a burden is that the cost of education has risen rapidly—53 percent over the past decade—while enrollment has changed little, concludes a report for the Allegheny Institute for Public Policy. The report recommends several ways to contain education costs and limit property tax increases. These include eliminating the ability of teachers and other school employees to strike; making it easier for districts to manage personnel and control costs by removing the requirement that teachers cannot be laid off during periods of financial difficulty unless enrollment falls or entire programs are eliminated; and removing the “prevailing wage” requirement for school construction.

How Taxes Drive Down Home Values
Current and future state employees’ wages and benefits drive up property taxes, and unless localities remedy this through significant, long-term restructuring, taxes will continue to increase and drive down the local tax base by discouraging nearby home ownership, writes Nicole Gelinas in National Review. Every dollar of unfunded pension and health care costs is a dollar less in the future value of a house. Raising income and sales taxes to fill these holes won’t work, she writes, because they mean less disposable income to spend on property-tax-boosting housing. The real answer is serious spending cuts.

Time for Property Tax Reform in Texas
Property taxes mean no one really owns their property, because failing to pay the annual tax means they lose their property, writes Talmadge Heflin in the San Antonio Express-News. This makes all homeowners mere renters from a government landlord. He suggests replacing Texas’s property tax with an increased sales tax, and he sketches how it would be done. This would shift the target of taxation from investment to consumption, he says, which could increase tax revenue by billions of dollars and add hundreds of thousands of new jobs.

How to Judge a Tax Plan
William McBride of the nonpartisan Tax Foundation discusses ten metrics to use in judging tax legislation, plans, and codes so that they are fairest to the people being taxed and benefitting from tax revenue and generate the most tax money with the least restraint on the economy. The questions cover four areas: fairness and neutrality, complexity and cost, effect on competitiveness and economic growth, and revenue stability.

Limit Growth of Government to Protect Taxpayers
Pennsylvania’s problem is not that it needs to raise taxes, but that it overtaxes and overspends, write three state lawmakers. The state has massively increased taxes and spending beyond what taxpayers are able to bear. The answer, they say, is statutory and constitutional limits on state spending to inflation plus population growth, with exceptions for state emergencies that would require a supermajority of lawmakers to allow.

Do Property Tax Caps Work? Lessons for New Jersey from Massachusetts
In 1980, Massachusetts capped local property tax growth at 2.5 percent per year. The Manhattan Institute’s Josh Barro examines the effects of that law on Massachusetts and its implications for a similar policy in New Jersey. He concludes the law succeeded in limiting tax increases and per-pupil education spending in Massachusetts. These fiscal successes have not come at the expense of the state’s educational outcomes, which are the nation’s best, even among disadvantaged groups. This suggests New Jersey and other states could significantly limit burdensome tax increases without hurting educational outcomes, by enacting similar property tax caps.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the School Reform News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann, at 312/377-4000 or [email protected].