Business-aligned groups pan Pennsylvania’s proposed $3 billion tax hike as more details emerge

(The Center Square) – More details emerged Wednesday about Gov. Tom Wolf’s proposal to hike personal income taxes on the top third of earners, claiming in his annual budget address that the rest would see no increase at all.

Wolf said charging “financially secure” residents more to help those with less succeed while directing those proceeds into public schools will address the educational and economic inequities across the state.

Pennsylvania Gov. Tom Wolf delivers his virtual budget address Feb. 3, 2021.Commonwealth Media Services

“Nobody likes paying [taxes],” Wolf said. “But I think we can all agree that some things can only be accomplished with everybody chipping in.”

If approved, the plan would generate $3 billion, two-thirds of which would be driven out to public schools. The rest would fill holes in the state budget exacerbated by the pandemic.

“Imagine no more chronic underfunding,” Wolf said. “No more budget gimmicks, shifting around money to hide our shortfalls. No more picking winners and losers. No more last-minute, one-time bailouts for school districts because they can’t make ends meet. And no more passing on the cost of our broken system in the form of skyrocketing property taxes.”

Wolf said the state’s 3.07 personal income tax – one of the lowest rates nationwide – forces most residents to pay a higher share of their income than those like him with more financial security.

The disparity means rural communities and cash-strapped cities alike raise property taxes year after year to fund schools and fix roads and bridges. And businesses, he said, pay some of the highest tax rates in the country – another side effect he says makes little sense.

“I want to help working families get ahead by reducing their taxes,” he said. “This isn’t about pitting the rich against the poor and the middle class. This is about asking folks who have already made it to shoulder a little more of the burden so that folks who haven’t made it yet have a better chance to do so.”

The plan would expands the tax forgiveness credit to $15,000 for individuals and $30,000 for couples, with an additional $1,000 credit per dependent. Residents earning more than this would see forgiveness decline 1 percent for each $500 above the threshold.

The administration said that it means a married couple with two children earning $50,000 or less would pay no personal income taxes. The same family earning less than $84,000 would see a reduction in the amount they currently pay.

For those earning more than that, Wolf proposes increasing the PIT to 4.49 percent. Administration officials told The Associated Press on Tuesday that the plan would lower or eliminate taxes for two-thirds of workers, shifting the burden onto the top third of earners.

His plan also reduces the corporate net income tax rate to 8.99 percent in 2022, with incremental decreases to 5.99 percent by 2026. 

But critics said Wednesday the stepped forgiveness structure was “questionable” at best and would increase taxes for many middle income families.

A Commonwealth Foundation analysis, using data from the U.S. Census Bureau, determined that a couple with two children earning the state’s median income – for a four-person family – of $108,305 would pay $700 more under Wolf’s plan.

“Wolf’s tax increase plans threaten Pennsylvania’s ability to recover from the pandemic,” said Nathan Benefield, vice president and COO of the Commonwealth Foundation. “Thankfully, Wolf’s plans are likely dead on arrival in the Legislature.”

The plan also would leave 866,000 small businesses paying 46 percent more in PIT amid a pandemic, the analysis concluded. The National Federation of Independent Businesses said this, coupled with a proposal to gradually increase the minimum wage to $15 an hour by 2026, would “finish” businesses.

“Governor Wolf’s plan to increase the tax that most small businesses pay is a terrible idea when so many are trying to recover from pandemic-related financial losses,” said NFIB Pennsylvania Director Gordon Denlinger. “While we support a reduction in the corporate tax rate, the governor should be trying to stand with struggling smaller passthrough companies, and not burden them with higher taxes.”

The Pennsylvania Budget and Policy Center said, however, raising the minimum wage would boost incomes for more than 6 million workers and inject an additional $6 billion into the economy through consumer spending.

Pennsylvania’a $7.25 minimum wage hasn’t increased in more than a decade and remains lower than every other northeastern state, as well as Ohio and West Virginia, where workers earn $8.80 and $8.75, respectively.

Denlinger said, however, the sharp rise would just force most business owners operating on thin profit margins to lay off workers and cut hours – especially in the hard-hit hospitality industry.

“A huge income tax hike and a mandated $15 minimum wage will especially endanger the existence of small business owners in the hospitality industry who have been hurt the most by the pandemic and tend to hire unskilled and inexperienced people,” he said. “We don’t want to see more ‘Going out of Business’ signs or have jobs disappear for people on the lower end of the pay ladder. Governor Wolf’s budget proposals would do just that.”

Wolf’s budget proposal, however, seems destined to fail in the Republican-controlled Legislature. GOP leaders in the House and Senate said raising taxes was a non-starter for budget negotiations and would only further strain the state’s economic recovery.

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