The Independent Fiscal Office (IFO) released a new analysis of Gov. Wolf's tax proposals yesterday. What is their most interesting conclusion? Taxpayers in every income bracket will see a net tax increase.
The table below breaks down the incidence of tax changes by 2018-19, the first full fiscal year in which all of Wolf's proposals would be in effect.
|Tax Incidence for Pennsylvania Residents, FY 2018-19|
|Net tax increase by household income under Wolf proposed budget, in millions|
|Under $25,000||$25,000-$49,999||$50,000-$74,999||$75,000-$99,999||$100,000-$250,000||More than $250,000|
|Sales and Use||$367||$616||$606||$512||$1,283||$721|
|Corporate Net Income||-$25||-$45||-$41||-$35||-$87||-$75|
|Net Severance tax||$44||$56||$47||$34||$60||$23|
|Source: Independent Fiscal Office: http://www.ifo.state.pa.us/resources/PDF/Revenue_Proposal_Analysis_April2015.pdf|
The IFO offers another look at tax incidence excluding tobacco taxes—which impose a significant burden on lower-income households. If, for whatever reason, you wanted to exclude an analysis of the burden of tobacco taxes, the lowest income group (households earning less than $25,000) would see a net tax reduction, but taxpayers in every other income category would still see a net tax increase.
That is, middle class families will pay more, even after Wolf's promised property tax reductions.
This finding shouldn't be surprising. As we noted, using Gov. Wolf's own revenue projections, only 30 cents of every dollar collected in new state taxes during the first two years of the plan go to property tax relief. Even if we ignore the tax implications of the governor's first budget, in which families will pay higher state taxes before seeing any property tax reduction, Wolf's tax shift proposal raises twice as much revenue in new state taxes than it provides in school tax relief.
It should also be noted that Wolf's tax shift provides an arbitrary system of doling out money to school districts. The amount of money your family could get in property tax relief depends—with quite dramatic differences—on where you live.
The IFO analysis delves specifically into the unique case for Philadelphia. Under Wolf's plan, Philadelphia, unlike any other school district, would see a reduction in its local cigarette tax, sales tax and wage tax along with property tax reductions.
Gov. Wolf has been trying to sell his budget by making a remarkable claim: Everyone will receive these great benefits, but only the wealthy will have to pay for them. The IFO analysis demonstrates otherwise. Not only will the wealthy pay, but low-income and middle class families alike will be hit hard under the governor's plan.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET, TAXATION
Pennsylvania's $50 billion public pension problem isn't going to solve itself. Reform is a must, which is why Senate Majority Leader Jake Corman has rightly called for structural changes to the public pension systems before considering higher taxes.
A reform being considered now would put new state and school employees into a defined-contribution (DC) plan. Transitioning to a DC plan for new hires—a necessary move to extract politics from pensions—is an important first step on the road to real pension reform.
But not everyone is convinced.
A common assertion put forth by critics of this approach is that such a switch would increase "transition costs," forcing taxpayers to foot the bill. The argument is as follows: Transferring new state and school district employees to a DC plan will increase costs for taxpayers as the pool of employees paying into the current DB plan shrinks, requiring more conservative investments and higher contributions.
Still awake? Good.
This argument against switching to DC plans is flawed. Eileen Norcross, program director and research fellow at the Mercatus Center explained why in her testimony last week:
Closing a defined benefit plan does not add liabilities to the plan. Rather, it changes how the plan’s liabilities are accounted for and changes the investment strategy for the plan’s assets. It reveals the economic value of the plan and makes the funding of the plan’s benefits more sound. Closing a defined benefit plan doesn’t add new costs; it makes the costs transparent, and it makes it easier to ensure that the benefits for retirees are fully funded.
But what about the specific contention that closing a DB plan requires moving to more conservative investments, leading to an increase in costs? Norcross refutes this myth:
The investment-based transition costs argument is a casualty of the flawed accounting standards that have created large, unfunded pension liabilities that states must now address. The use of GASB 27 over the years created an accounting and funding illusion that allowed public plans to ignore investment risk and undercontribute annual plan payments. It is why plans experienced such large and unanticipated losses during the 2008 market crash and why plans suffer from large unfunded liabilities today.
To summarize, unrealistic assumptions about future investment returns can increase costs—not a transition to a DC plan. In fact, unrealistic assumptions create dramatic risks for taxpayers that may be alleviated by moving new hires to a DC plan:
…the probability of Pennsylvania meeting its pension obligations by the year 2030 without additional contributions is not even 50 percent, but significantly lower: 31 percent for the Public School Employees Retirement System (PSERS) plan and 16 percent for the State Employees’ Retirement System (SERS). The need to make up this shortfall is the reason for saying that closing a defined benefit plan generates investment-based transition costs. But these costs lessen the risk of pension underfunding and may even eliminate the risk.
RELATED : PUBLIC EMPLOYEE PENSIONS AND BENEFITS
A Commonwealth Court judge has issued a preliminary injunction to stop full enforcement of Gov. Tom Wolf's executive order to stealthily unionize home healthcare workers.
For folks like Dave Smith and his care provider Don Lambrecht, the injunction is wave of relief. The two men have lived together for years and they have no interest in a union dictating their working relationship.
The unionization drive by the United Home Care Workers of Pennsylvania (UHWP) will continue. However, even if UHWP is selected to represent workers, the state cannot get involved in collecting dues from individual paychecks until the full court addresses the legality of Wolf’s executive order.
The union’s goal is to skim 2 percent of home care workers’ salaries from their pay, which would be up to 8.4 million each year if dues were collected from all 20,000 homecare workers under this order. Not a bad return after UHWP backers AFSCME and the SEIU contributed heavily to Gov. Wolf’s election campaign.
Dave and Don aren't the only ones concerned with the governor's overreach. On Monday, President Pro Tempore Scarnati and Speaker of the House Turzai filed an Amicus brief on behalf of the plaintiffs in the Fairness Center’s lawsuit. The leaders noted;
Executive Order 2015-05 is a blatant attempt by the Governor to circumvent the constitutionally-granted legislative authority of the General Assembly. The executive order should be declared invalid.
The Senate Republican Majority Caucus also issued a motion to intervene on the same day. And yesterday members of the Senate Health and Public Welfare Committee pressed acting-secretary Ted Dallas on the necessity of the order (paywall).
David Osborne, general counsel for the Fairness Center, notes, "No one—Republican or Democrat—should be comfortable with their governor issuing unconstitutional executive orders."
Click here for more background on Wolf’s executive order.
RELATED : HEALTH CARE, MEDICAID, UNIONS & LABOR POLICY, HOMECARE WORKER UNIONIZATION
Government union contract negotiations—long shrouded in secrecy behind closed-door meetings—are one step closer to openness and transparency. Today, a series of bills passed the Senate State Government Committee that will inform taxpayers about the contracts they are ultimately responsible for financing.
- SB 643, sponsored by Sen. Ryan Aument, requires public notice and open meetings when public sector collective bargaining agreements are negotiated.
- SB 644, sponsored by Sen. Mike Folmer, empowers the Independent Fiscal Office to estimate the costs of public sector union contracts prior to ratification.
- SB 645, sponsored by Sen. Patrick Stefano, requires public sector collective bargaining agreements to be posted on state, school district, or local government websites two weeks prior to signing.
In addition to enhanced transparency, these bills would protect taxpayers against the conflict of interest that exists when politicians accept government union campaign donations before engaging in secret negotiations with those same donors. Gov. Wolf, for example, accepted $2.6 million from six unions whose contracts he is negotiating or will soon be negotiating—including more than half a million dollars from the American Federation of State, County, and Municipal Employees (AFSCME), the largest state employee union in Pennsylvania.
Coincidentally, at the same time lawmakers in the Senate are promoting open-government legislation, Gov. Wolf appears close to a one-year agreement with AFSCME. The AFSCME contract is typically the basis for other state contracts. If the AFSCME deal is applied to all union contracts expiring this year, it represents approximately $76 million in additional taxpayer costs.
Should the transparency bills be signed into law, Pennsylvania would join 11 other states that have pursued similar good-government legislation. It's time to follow the trend and shine a light on this significant expense.
RELATED : ACCOUNTABLE GOVERNMENT, TRANSPARENCY, UNIONS & LABOR POLICY, UNION DUES AND POLITICS
Sarina Rose, VP of Development for Post Brothers Apartments, knows firsthand what its like to be harassed. She was verbally berated and threatened in a Philadelphia restaurant. But because the abuse occurred during a labor dispute the harassment was deemed legal and the judge dismissed the case.
That would change under legislation passed in the House yesterday. HB 874 would close a deplorable loophole in Pennsylvania's Crimes Code. The loophole allows an individual to harass, stalk, and threaten the use of a weapon of mass destruction IF these aggressive acts are carried out during a labor dispute.
Neither management nor union employees should be harassed, stalked, or threatened with impunity. While both groups have a constitutional right to express their opinions about business practices, they should not have a license to be violent.
HB 874 now heads to the Senate.
Click here to see how your representative voted.
RELATED : UNIONS & LABOR POLICY
In the face of Governor Wolf’s proposed $4.5 billion tax increase, a group of Senate lawmakers are offering an alternate vision for Pennsylvania—one of limited government and economic prosperity.
Today, the Senate Finance Committee passed two versions of Taxpayer Protection Act legislation. Senate Bill 70, an amendment to the state Constitution sponsored by Sen. Camera Bartolotta, and Senate Bill 7, sponsored by Sen. Mike Folmer, are now eligible for a vote by the entire chamber. These bills protect middle-class Pennsylvanians from reckless spending and tax increases.
The Taxpayer Protection Act achieves four goals:
- Limits the future growth of government spending to inflation plus population growth
- Requires state government to prioritize future spending
- Establishes a Rainy Day Fund to help balance the budget during economic recessions
- Provides tax relief for working families
On several occasions, Gov. Wolf has urged his fellow citizens to, “please come with your own ideas. It’s not good enough to just say no and continue with the same old, same old.” The Taxpayer Protection Act would set the state on a new course.
Working Pennsylvanians deserve a government that lives within its means. They deserve to keep the fruits of their labor.
Read more about the Taxpayer Protection Act.
RELATED : JOBS & ECONOMY, SPENDING LIMITS, TAXES & SPENDING, TAXATION, PENNSYLVANIA STATE BUDGET
I am angry.
As my colleague Dawn pointed out last week, ballots were mailed to home health care workers asking them whether or not they want to be represented by the United Home Care Workers of Pennsylvania—a self-described “union” and joint project of two other government unions, AFSCME and SEIU.
Most of these homecare workers are taking care of a family member or friend, and have no need or desire for a union to get in between them and those they care for. Yet, if just a majority of those voting check 'yes,' United Home Care Workers will have a union monopoly over all homecare workers.
This stealth unionization scheme was made possible by an executive order from Gov. Tom Wolf. The Wolf administration denies this is a unionization effort. According to Gov. Wolf’s press secretary, these ballots to elect a union are “not a union ballot.”
This despite a mailer sent to homecare workers highlighting “a special message about our union election” and urges home care attendants to get involved “by forming our union.” (Emphasis added)
Here’s what this unionization scheme is about: money. SEIU and AFSCME want to skim union dues off the top of Medicaid payments to homecare providers. Already, the union has sent out forms to authorize paycheck deductions which will total an estimated $8.4 million in additional revenue for SEIU and AFSCME coffers.
Gov. Wolf would also benefit. AFSCME and SEIU contributed more than $1.5 million to Gov. Wolf’s campaign in 2014, while spending hundreds of thousands more in independent expenditures and “SuperPAC” contributions—directly from union dues—to support his election.
Our latest policy memo provides a background on Wolf’s executive order and the lawsuits filed to stop this stealth unionization scheme and dues skim.
RELATED : UNIONS & LABOR POLICY, HOMECARE WORKER UNIONIZATION
The Educational Improvement Tax Credit program (EITC) offers businesses the chance to be more involved in their communities by offering tax credits in exhange for sholarship funding. This program allows students in failing or dangerous districts to attend thriving educational organizations like Logos Academy in York.
Matt Brouillette, CF’s president & CEO, and James Paul, a CF senior policy analyst, recently sat down with David Taylor, president of the Pennsylvania Manufacturers’ Association, to discuss the EITC program and the opportunities it affords students who are trying to flee failing school districts.
These scholarships help students who want a better quality education, but lack the resources to obtain one. As Matt describes, these businesses “are either going to pay that money to Harrisburg or give it to a scholarship organization that is rescuing kids and families” from dangerous and violent school districts. Seems like an easy choice, doesn’t it?
Both the continual growth and increasing political support of the EITC program show how beneficial educational choice can be for students. James describes the program’s success by pointing out that “since the implementation of the EITC program in 2001, Pennsylvania has seen nearly 500,000 scholarships awarded”—scholarships targeted at students in the lowest performing school districts.
Aaron Anderson, CEO of Logos Academy, calls programs like EITC a “no brainer” since they provide businesses the opportunity to give a student who is in a struggling school district a real opportunity and a real alternative to get a world class education. EITC is ensuring that every child in Pennsylvania has access to a quality, safe school of their choice.
For another example of the benefit tax credit scholarship programs bring to Pennsylvania families, read James Paul's commentary Scholarships Offer Lifeline to PA Students.
RELATED : EDUCATION, SCHOOL CHOICE
This is not a union ballot, according Jeffrey Sheridan, press secretary for Gov. Wolf.
The ballot you see was mailed to a home health care worker. Gov. Wolf issued an executive order that effectively unionizes home health care workers, potentially adding millions to government union coffers. Last election cycle, government unions gave $3.4 million to Gov. Wolf's campaign.
United Home Care Workers of Pennsylvania is a joint project of two government unions, AFSCME and SEIU. On its website it self-describes as "a union". In a mailer sent to home care workers, they offer "a special message about your union election." (emphasis added)
"It’s not a union ballot," Jeffrey Sheridan told the Post-Gazette. "It's just not. They’re wrong."
Mr. Sheridan doesn't have to call it a "ballot." He can call it a unicorn if he wants, but the fact remains that deceptive tactics are being used against those who serve some of the most vulnerable Pennsylvanians.
RELATED : UNIONS & LABOR POLICY, HOMECARE WORKER UNIONIZATION, UNION DUES AND POLITICS
The radical environmentalist group and corporate welfare lobbyist PennFuture has updated an absurd study about the "subsidies" Pennsylvania taxpayers pay for fossil fuels. While we oppose subsidies for any industry, most of PennFuture's "subsidies" are the absence of higher taxes on consumers.
PennFuture's analysis show less than $60 million in actual direct subsidy for fossil fuels (some of which is for alternative energy programs). What they consider a "subsidy" is not taxing certain goods and services.
Most of their "subsidy" total comes from not applying the sales tax to gasoline and electricity. That is, taxpayers would "save" by paying more in sales tax at the pump and in their heating bills.
But wait, you must be thinking, don’t we have a gasoline tax and an electricity tax?
Why yes, yes we do. They are claiming we are subsidizing gasoline by taxing it, but not taxing it twice.
- Almost 44 percent of these "subsidies" are for NOT imposing the sales tax on gasoline. Yet gasoline is taxed separately under the Oil Company Franchise Tax. In fact, as of 2015, Pennsylvania has the highest state gasoline tax in the nation.
Gasoline is exempted from the sales and use tax for that reason and that reason alone—it doesn't make any sense to double-tax a product. To suggest state taxpayers are "subsidizing" gasoline production by imposing a tax on gasoline (but not two taxes) is beyond ridiculous.
- Another 20 percent of these "subsidies" are for not imposing the sales tax on electricity and heating fuel. Again, these utility bills are taxed separately under the Gross Receipts Tax. Making consumers pay another tax on their electric bill or heating bill does not repeal a subsidy, and in certainly doesn't save taxpayer.
Both of these tax exemptions—making up almost two-thirds of PennFuture’s estimates of "subsidies"—suggest we should impose taxes on top of taxes on consumers at the pump or in their utility bills. Either PennFuture doesn't understand how taxes work, or are deliberately misleading their readers, but either way, they what they are suggesting is higher taxes on families.
Other "subsidies" include not taxing the government for its use of fuel (because we don’t tax the government for anything) and not imposing property taxes on the value of natural gas. This is a tax that would hit homeowners; it is not a subsidy for the businesses.
PennFuture seems to have no idea what a subsidy actually is. Ironically, they are lobbying for new subsidies, specifically $225 million in subsidies for alternative energy under Governor's Wolf budget proposal.
Worse yet, these subsidies will come from borrowed dollars. Governor Wolf wants to borrow funds and pay it back (with interest) using a new tax on natural gas severance. In other words, PennFuture not only wants to double-tax fossil fuels, they want to place a special tax on natural gas to subsidize cronies in the wind and solar power industry.
It's clear that these subsidization schemes not only punish taxpayers, but fail to create jobs. Pennsylvania continues to see anemic job growth, despite $2.9 billion in taxpayer-financed alternative energy loans and grants since 2003.
RELATED : ENERGY & ENVIRONMENT, ALTERNATIVE ENERGY, ENERGY POLICY, TAXES & SPENDING, TAXATION
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