(The Center Square) – Gov. Tom Wolf’s call to raise Pennsylvania’s personal income tax amid a broader plan of infusing $4 billion in revenue into the state budget was scrutinized by a number of senators at a recent budget hearing.
When Matthew Knittel, director of the state Independent Fiscal Office, went before members of the Senate Appropriations Committee on March 8, questions frequently swirled back to the proposal, which Wolf unveiled in early February amid his budget address to increase spending on public education.
But from a policy perspective, state Sen. Patrick Browne, R-Lehigh, said he believes it is important to enact legislation that has the labor market and residents’ pocketbooks in mind.
If Wolf’s proposal is adopted, at face value, Browne said he believes a current trend in population declines will continue into the future.
Knittel presented the committee with his office’s demographic snapshot, which reveals projected population declines. The IFO is anticipating a state population of 12.76 million people in 2025, compared to 12.8 million in 2020. The forecast numbers drop further to 12.66 million people in 2030.
“It has been a large issue for the past decade, if not more,” said Browne, who serves as majority chair of the Senate Appropriations Committee. “Based on my analysis, I think this is way too risky. If we’re not doing something to turn (the trend) around … Pennsylvania’s in trouble”
Wolf’s proposed income tax increase, if implemented, would go from the current rate of 3.07 percent to 4.49 percent, beginning in July. Households of four or more people, earning more than $84,000 annually, would be subject to the increase.
Based on tentative numbers, Knittel said Wolf’s plan would result in decreased or flat income taxes for 61 percent of filers. The balance of 39 percent of the tax filers would be subjected to the increases.
“We will be looking at how that feeds back into the economy,” Knittel said of the impact from an income tax increase.
During testimony, Knittel was asked how raising the state’s personal income tax would impact the out-migration trend that was occurring pre-pandemic.
“We’ve looked at migration statistics in the past,” Knittel said, in response. “We have not yet done so for the purpose of this proposal.”
Alongside the income tax hike, several lawmakers used the hearing as a platform to weigh in on Wolf’s proposed changes to the state’s long-standing poverty forgiveness credit for taxes. The draft budget offers accommodations to file for the credit for a family of four with a household income less than $100,000 annually.
Since Pennsylvania’s poverty tax credit was last reviewed in 2004, Browne said it would be prudent to revisit it this budget season.
But the threshold Wolf is proposing – well above the federal poverty line – is an overreach, Browne said in his closing remarks.
“I am really afraid about expectations,” Browne said. “Up until this point we have been really clear about the expectations for (the credit).”