A version of the following op-ed appeared in the Pittsburgh Post-Gazette on May 24, 2015
Gov. Tom Wolf observed in his March budget address that “Pennsylvania will not improve until we rebuild the middle class.” His proposed budget lays a good foundation for that effort.
To pay for investments in education, human services, job creation and community development — and to fill a budget hole — our new governor has no choice but to raise some taxes.
But Mr. Wolf proposes to raise needed revenues in a creative way that actually reduces taxes paid by lower-income Pennsylvanians while asking only a little more from better-off Pennsylvanians.
If the General Assembly passes the governor’s budget, a long-overdue overhaul of Pennsylvania’s budget and tax system would begin.
Prior to 2015, years of insufficient revenue and one-time fixes left our state with a $2 billion budget deficit. Previous budgets also gutted funding for the very things our state should invest in: schools, job creation and government services that help families in need get back on their feet. Such disinvestment in communities and the future is unsustainable.
The fundamentally unfair Pennsylvania tax system also needs to be fixed. Right now, middle- and low-income Pennsylvanians pay 10 percent to 12 percent of their incomes in state and local taxes while the highest-income Pennsylvanians pay only 4 percent. Pennsylvania has the sixth-most unfair state and local tax system in the nation.
Levying the highest tax rates on low incomes is like trying to squeeze blood from a stone; you don’t raise enough revenue to adequately fund public education and social programs, and you make the economic struggles of working families more difficult.
The Better Choices for Pennsylvania coalition — which is comprised of 35 organizations from across the state, including Just Harvest and the Pennsylvania Budget and Policy Center — is advancing 19 recommendations to make our state’s tax system fairer.
The Wolf plan would adopt one-third of the coalition’s recommendations, including a 5 percent severance tax on natural gas extraction, a rate comparable to West Virginia’s. Pennsylvania is the only major gas-producing state that doesn’t impose such a tax. Most of the expected $1 billion in annual revenue from the tax would replace funds cut from public education in recent years.
Mr. Wolf’s budget proposes closing corporate tax loopholes, another of the coalition’s recommendations. The bookkeeping games allowed by tax loopholes are one reason nearly 75 percent of Pennsylvania’s corporations pay less in state income taxes than the thousands of low-income clients Just Harvest sees each year at our tax preparation program.
The most powerful — and creative — way that Mr. Wolf would promote tax fairness is through $3.8 billion in property tax relief and rent rebates. All homeowners would get some relief, but residents of middle- and low-income communities would see the largest percentage cuts.
Mr. Wolf’s budget demonstrates the governor’s awareness of the number of Pennsylvanians — including one in four Pittsburghers — who live in poverty, and his understanding that any tax increase can hurt those for whom every penny counts. His plan would expand a program under which the lowest-income households pay no income tax and maintain Pennsylvania’s sales tax exemption for food and clothing — two more of the coalition’s recommendations.
Overall, the Wolf plan — even with its proposed sales and income tax increases — reduces taxes for the lowest-income fifth of Pennsylvanians by about 1 percent of income. The next-lowest income fifth would see no change in tax rates. The top three income fifths would see increases in taxes of half a percent or less — a modest price for investing in education, jobs and communities and making the state fiscally sound.
In final budget negotiations, the Better Choices coalition calls on the Legislature and Mr. Wolf to make more changes that increase tax fairness — an upward adjustment in the income level below which families pay no state income tax, a state earned-income tax credit to benefit the lowest-paid working families and a smaller cut in the state’s corporate net income tax.
Any budget is an expression of priorities. The governor’s budget focuses on voters’ top priorities: funding education and boosting job creation. He also found a way to combine Republican proposals for property tax relief with a visionary and comprehensive strategy for revitalizing older communities. Now we need our legislators to make the best interests of their constituents a priority and pass a fair and just budget.
Ken Regal is executive director of Just Harvest, an anti-hunger organization that serves Allegheny County. Michael Wood is research director for the Pennsylvania Budget and Policy Center.