Inside Take: Money for Schools, or Tax-Free Helicopters?

(This is an opinion column from a Citified insider.)

Most Americans know that the federal tax laws are filled with carefully crafted tax breaks for certain special interests. What Pennsylvanians need to know is that our state’s tax system is also riddled with loopholes, most of which benefit a select group of individuals or industries and cost the state billions in lost revenues.

Here’s a typical example: Pennsylvania’s six percent sales tax is applied to the purchase of a car, but when a plane or helicopter is sold, it’s not. Given the sort of company, nation-state or individual that can afford to purchase a copter or jet, that’s pretty astonishing. State law even shields storage payments in airplane hangars from the sales tax because the industry successfully argued that hangars store planes in “common areas” that are entirely different from the self -storage lockers, which are taxed. The lobbyists who got this passed must be flying free for life.

If Pennsylvania had a robust aviation manufacturing sector and it suffered sudden market or competitive change and threatened thousands of jobs, a special temporary tax holiday might make sense. But that’s not the case. Last year, when the economy was growing and unemployment was shrinking, the state’s tax break for the companies in the aviation sector was expanded to about 50 additional aviation-related companies that employ less than one tenth of one percent of the state’s workforce, according to the Pennsylvania Senate’s Independent Fiscal Office (IFO). In fact this research office estimated the cost of expanding the aviation tax exemption is at least $12.4 million on top of about $5 million in lost tax revenues from the original tax break for helicopters and planes.

In fact, the Commonwealth has about 100 sales tax loopholes mostly for well-heeled companies and individuals. The sales tax is the state’s second biggest revenue generator accounting for about $9 billion of state revenues. Meanwhile, nearly $19 billion in state revenues is not collected because of narrowly-written statutes for special interests that exempt certain goods and services from the sales tax. Put simply, Pennsylvania is giving away two times more in sales tax breaks than it’s collecting in sales tax revenue.

Meanwhile, the state’s $29 billion budget is about $2 billion in the red. Even more troubling is the fact that school districts across the state have laid off thousands of staff to adjust to the new normal of state spending that is so low that we rank 47^th in the nation when it comes to state share of spending for public schools.

When arguing for the expansion of the aircraft sales tax exemption in 2013, an impassioned state representative argued that the tax break would increase the job placement prospects of students attending a private airplane mechanic training school in Pittsburg with about 200 students. But the Senate research office found that, “it was unable to locate any study that performs a statistical analysis of the impact of the exemptions.” That means that no one even had to try to make the case that avoiding more than an estimated $18 million a year in taxes is essential to the competitiveness of the industry.

Some House and Senate members, as well as the Governor, have a better idea. They are proposing to get rid of billions of dollars in sales tax exemptions and plow the revenues into property tax reduction and funding for our schools. That’s good news for nearly two million kids in Pennsylvania schools because there is ample research that demonstrates that the right investments in education will make our state more competitive and prosperous.

Donna Cooper is executive director of Public Citizens for Children and Youth. She formerly served as a cabinet-level policy adviser to Gov. Ed Rendell. Follow her on Twitter at@DonnaRCooper.