Editor’s note: What follows is the second in a four-part series
on a tax referendum in the May 15 primary election, a shift in the
way we pay for public education. In today’s story and graphics,
learn how to calculate your own tax liability.

There will be winners. There will be losers. And, of course,
there will be those in between.

Before you vote on the May 15 referendum on a shift in school
taxes, you might want to calculate which category you’ll fall into
– and by how much. The ballot question is part of the most recent
attempt at tax reform in Pennsylvania known as Act 1.

Generally speaking, senior citizens on a fixed income will
benefit by this new tax proposal.

Wage earners without any property, such as renters, will be the
big losers.

You’ll likely break about even if you’re a wage earner who owns
property.

We’ve prepared several charts to help taxpayers calculate their
exact tax liability under this proposal, a good starting point
before you get into the voting booth.

While the tax reform plan appears to be complex – particularly
with important, hair-splitting differences in how terms are defined
– we feel confident your choice will be clear with a little
patience and a No. 2 pencil (with eraser).

We have created three separate charts.

The first is for the purported winners, senior citizens on fixed
incomes. Since these individuals have virtually no “earned” income,
but relatively high property tax, they should see some of their tax
burden lifted.

One of the key concepts in this plan – not just for senior
citizens but all taxpayers – is the definition of “taxable”
“earned” income.

Seniors are exempt from the “earned” income tax because it
excludes such “unearned” income as Social Security, pension, and
dividends. The burden, thus, falls on those who have “earned”
income such as those who are paid wages or reimbursements for
actual work.

Our second chart illustrates how this burden is shifted. Owning
no property and thus having no “homestead exemption” to claim, this
group of people would end up paying this new income tax.

Our third chart is for those in the middle, tricky category –
those who earn a wage but also own a property that qualifies as a
“homestead.” On average, this person’s increase in income tax is
offset by the decrease in property tax.

While school directors have put together numbers that indicate
the “average” wage earner in this category would not see a
significant change in overall taxes, that number can vary widely
depending on how far you might veer from the “average” in term of
take-home pay.

We have used the “average” annual salary in our charts but it’s
vital that you plug in your own pay in determining any tax
liability under this plan.

So, please, get out pencil and paper and begin …

We’ve also included a list of definitions to help you get
through some of Act 1’s complexities.

Tomorrow: What the critics say.

Defining tax reform referendum terminology

The tax reform referendum on the May 15 primary ballot is a bit
easier to understand with definitions of some terminology.

Earned income tax. It’s important to understand that this is a
tax on income that is actually earned through wages. Excluded in
this tax is income from pensions, Social Security, dividends,
interest. In other words, it takes in virtually all people working
a job but excludes retirees who live on pension, or Social
Security.

Homestead. For purposes of this discussion, a “homestead” is any
owner-occupied home. A farm also can be included in a definition of
a “homestead.” Equally important is what a “homestead” is not – It
is not commercial property, rental property, industrial property,
unimproved real estate.

Homestead exemption. Virtually every property owner who meets
the definition above is eligible for this exemption. The amount is
determined by an individual school board. However, to claim that
eligibility you must have applied previously for the exemption. No
further applications are being accepted this year. If you are
eligible, you should have been notified by mail since the time the
“homestead” concept was first introduced during the 2005 round of
tax reform known as Act 72. If you are in doubt, you should contact
the McKean County Board of Assessments.

Back-end referendum. If the income tax is approved by voters, it
would require school districts to seek voter approval of any future
property-tax rate increases that exceed the rate of inflation. This
back-end referendum would appear on the ballot, if necessary, in
the spring primary election.