PA Taxes

With ongoing negotiations over the state budget focused on property tax cuts, and the State Senate taking up a bill to eliminate property taxes, this briefing paper compares property tax elimination with two more targeted approaches that would reduce, but not eliminate property taxes: the Republican proposal that passed the Pennsylvania House in May (House Bill 504) and Gov. Wolf’s original proposal from March.

We find that property tax elimination would raise taxes on the middle class to give wealthy homeowners and businesses in wealthy communities a tax break. Both targeted approaches would be better for the middle class, but the Wolf proposal would be the best for moderate-income homeowners and would also cut non-residential property taxes the most in lower-income communities, a potential boost to community revitalization.

Gov. Wolf and legislative leaders are currently negotiating over the terms of a plan to cut property taxes which would be financed by an increase in the state sales tax rate from 6% to 7.25%. This brief analyzes the size of the sales tax rate increase by income. It also compares that impact to how much different income groups would pay with an increase in the state personal income tax rate from 3.07% to 3.57%, as proposed by Gov. Wolf in October and rejected by the Republican legislative majority and nine Western Pennsylvania Democrats.

On Tuesday, November 10th, Governor Wolf and legislative leaders announced a budget framework for 2015-16.  While an agreement could be good news, some key issues have not been addressed.

Over the past few years, many other states, similar to Pennsylvania in 2011 and again today, have faced critical choices about whether to raise state revenues, hold firm to “no new taxes” or even cut taxes further. We examine the experience of four other states as well as Pennsylvania. Two of the other states – California and Minnesota – raised taxes to improve their fiscal health and to reinvest in education. The other two states – Kansas and Wisconsin – followed the same path as Pennsylvania under Gov. Corbett, cutting taxes in varying degrees and cutting education spending.

One critical value that should guide tax policy in our view is “revenue adequacy” – having enough revenue to invest in essential public goods, starting with education, and in services critical to quality of life for middle‐ and low‐income families.

"Pennsylvania is now the second largest natural gas producer in the country," testified Research Director Michael Wood before a Senate Joint Committee,"and it is time to end the excuses and enact a real severance tax."  

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