As Pennsylvania’s government faces a budget deficit of well more than $1 billion in the next fiscal year, one legislator is teaming up with a Harrisburg think tank to call for changes to income tax rates.
According to state Sen. Art Haywood (D-Philadelphia) and the Pennsylvania Budget and Policy Center, the three proposals hashed out Monday would close the state’s “structural” budget deficit by shifting the income tax burden from low- and middle-income residents to the wealthiest Pennsylvanians.
They’re calling on Republican legislators to get on board. Stephen Herzenberg, executive director of the liberal-leaning Keystone Research Center (the PBPC’s parent organization), said conservative lawmakers from rural areas should be “first in line.”
“When you have a tax system where the middle pays two-and-a-half times what the top 1 percent pays, and the bottom half pays three times what the top 1 percent pays, the people who are paying more are in Tioga, and Bradford, and Elk (counties) and on down the line of Pennsylvania’s rural areas,” Herzenberg said.
But Senate Finance Committee chairman John Eichelberger (R-Blair), said he disagrees with the fundamental premise of the report: that more revenue is needed to balance the state budget.
"That is not the conclusion of many people, including myself," Eichelberger said. "We don’t have to have more revenues in the state. We need to do a better job with spending the money that we have.”
- The first option in the report, which has already been rejected by the Republican majorities in both chambers of the legislature, is to follow Gov. Tom Wolf’s budget proposal by raising the flat income tax rate to 3.4 percent for all Pennsylvanians, up from its current level of 3.07 percent.
- Different types of personal income would be taxed at different levels in the second option presented Monday: the income tax rate for wages and interest would increase to 3.25 percent, while “incomes of wealth” – including dividends, capital gains, rent payments and more – would be taxed at 4 percent.
- The third proposal offered Monday, and the one endorsed by the PBPC, would exempt the first $30,000 of all residents’ income from taxation, then raise taxes on any remaining income to 6.62 percent. This option would require a change to the “Uniformity of Taxation” clause of the state’s constitution, which is the underlying reason for Pennsylvania’s flat income tax rate.
Tiered tax rates are used by the federal government and some other states.
Senator Haywood has already introduced legislation that would change the uniformity clause. He acknowledged he’s playing the long game with a proposal to amend the constitution, which would require several votes of approval over multiple legislative sessions.
“The legislature’s movement is not like a 100- or a 200-meter race,” Haywood said. “It’s, instead, much more like a 10,000-meter or even sometimes a marathon.”
For his part, Senator Eichelberger said he would at least look at the second option, so long as any such "shifting" of tax burdens remained revenue-neutral for the state and fair for all residents.
According to a January report from the state’s Independent Fiscal Office, Pennsylvania’s revenues will come up about $1.86 billion short in the 2016-17 budget, with progressively larger deficits each fiscal year thereafter.