The Pennsylvania Independent Fiscal Office (IFO) utilized the REMI model to evaluate a proposal to eliminate school district property taxes and replace the revenue with increases in income and sales taxes. Under this proposal, personal income tax would rise from 3.07% to 4.95%, sales tax would increase from 6% to 8% on the current tax base, and a new 2% sales tax would be applied to clothing, candy, and gum. The study forecasted the economic and fiscal impacts over a ten-year window.
The REMI dynamic model estimated the macroeconomic implications of the tax change. The analysis indicated negative employment, population, and labor force impacts. This is attributed to the fact that the higher income and sales taxes would have a greater effect on economic incentives to live and spend in Pennsylvania than the lower property taxes. The results further showed the year-by-year effects on personal income and sales taxes, with the negative economic impacts shrinking their respective tax bases and thereby somewhat dampening their static revenue gains.
Click here to view the full report.
