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Chambersburg tax study group backs raising earned income tax

October 20, 2006|by DON AINES

CHAMBERSBURG, Pa. - The Chambersburg Area School District Tax Study Commission voted Thursday to recommend raising the district's earned income tax to 1.2 percent, a increase that would give all homeowners a $333 decrease in property taxes.

The vote was 7-2 to recommend increasing the earned income tax instead of creating a broader personal income tax, commission member Greg Paulson said.

"I don't think anybody was strongly in favor of either one," said Paulson, who did not vote in favor of the earned income tax (EIT) that taxes payroll income, but not pensions, Social Security or investment incomes.

The EIT is easier to collect than a personal income tax, which would have included income from dividends, interest and other investments, Paulson said. Secondly, commission members were concerned a personal income tax might not be approved by voters, he said.

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Paulson said the "break-even point" for homeowners will be about $53,000. Above that figure, the increase in the EIT will be higher than the $333 reduction in property taxes. Homeowners making less than that, he said, will see their overall tax burden decrease.

The commission will present its recommendation at a public meeting Tuesday, Nov. 7, and to the school board Nov. 8, Paulson said. If accepted by the board, it will be placed on the May 15, 2007, primary ballot, according to Act 1, the school property tax reform bill signed into law earlier this year.

The school board may reject the recommendation, but Act 1 still requires the board come up with a ballot question offering property tax relief. If approved by voters, the earned income take increase and property tax decrease will go into effect July 1, according to the law.

District residents currently pay .5 percent of their earned income to the school district and .5 percent to the municipality in which they live. The commission's recommendation would only raise the earned income tax paid to the district.

"It's not a tax reduction, it's a tax shift ... mainly from older people with homes to younger people with income," School Board President Craig Musser said.

"I think it's a step in the right direction. It's a small partial solution to the overall problem," said Carl Barton of Chambersburg, vice president of Citizens for Responsible Government.

"A personal income tax would have been fairer to capture some dividend and interest income," said Barton, who also noted the difficulty districts would face in collecting that tax.

Opting for a personal income tax would have primarily affected wealthier residents with investment incomes, rather than the average taxpayer, Musser said.

Voters in Chambersburg and other districts might have to consider another Act 1-related referendum May 15. If a proposed school budget exceeds an inflationary index set by the state, it is subject to approval by voters, a situation districts with expensive construction programs, such as Chambersburg, could be facing.

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