Fact Sheet

Budget Facts 2009: Personal Income Tax and Job Losses

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Pennsylvania faces a $3 billion tax revenue shortfall in the state’s General Fund Budget. Competing proposals from Gov. Ed Rendell and the Republican-led Senate differ on raising taxes and reducing/reprioritizing spending. This is the fourth in a series of fact sheets on the state budget.

GOVERNOR RENDELL’S PROPOSED TAX HIKE

  • Gov. Rendell has proposed a 16% increase in Pennsylvania’s personal income tax (PIT) rate-from 3.07% to 3.57%.
    • This tax increase will take $1.5 billion in additional tax dollars from Pennsylvania residents and small businesses, the majority of which pay the personal income tax.

A TAX INCREASE WILL RESULT IN THE LOSS OF THOUSANDS OF PENNSYLVANIA JOBS

Effect of Tax Changes on PA Jobs
Projected Private Sector Jobs, 2009-10
0.5% PIT Increase 1% PIT Increase 2% PIT Increase
Latest Estimates 5,156,122 5,156,122 5,156,122
With tax change 5,132,162 5,108,489 5,061,631
Effect of Tax Change -23,960 -47,633 -94,491
Sources: Governor’s Executive Budget, Beacon Hill Institute
  • Using the PA-STAMP economic modeling program developed by the Beacon Hill Institute at Suffolk University, the Commonwealth Foundation finds:
    • Gov. Rendell’s proposed PIT increase to 3.57% would result in nearly 24,000 fewer Pennsylvania private sector jobs.
    • If the PIT rate was increased by 1 percentage point, almost 48,000 jobs would be lost or not created. 
    • If the PIT tax rate was increased by 2 percentage points, Pennsylvania would lose nearly 94,500 jobs.

PENNSYLVANIA IS A HIGH-TAX STATE

  • While Gov. Rendell and his allies contend that Pennsylvania has the 2nd lowest top or flat state income tax rate, this distorts the real tax burden shouldered by Pennsylvanians.
    • Pennsylvania actually ranks 16th in the nation in income taxes collected per person, because the Commonwealth also has local income taxes, which few other states do.
    • Nine states have no income tax, or only apply it to interest and dividends.
    • Most states have lower bottom rates, which apply to the first few thousand dollars of each taxpayer’s income.
    • Most states have personal exemptions, marriage and child deductions, and other credits or deductions that reduce the overall tax burden.
  • When looking at all taxes, Pennsylvania has the 11th highest state and local tax burden, according to the Tax Foundation.

FALSE PROMISE OF GOVERNMENT STIMULUS

  • President Obama and Gov. Rendell predicted that the federal “stimulus” bill they pushed for would have an immediate impact and save or create new jobs.
    • In Pennsylvania, the Recovery Act was supposed to “save or create” 143,000 jobs.
    • However, unemployment is higher today than Obama’s economic team had predicted it would be without stimulus aid.
Pennsylvania Job Growth
In thousands, through April 2009, Not Seasonally Adjusted
Since Start of Recession (Dec 2007) Since April 2008
Number Percent Number Percent
Private Sector -216,600 -4.2% -170,900 -3.4%
Government Jobs 13,500 1.8% 6,400 0.8%
Federal Government 3,400 3.3% 3,700 3.6%
State Government 4,800 3.0% -200 -0.1%
Local Government 5,300 1.1% 2,900 0.6%
Source: Bureau of Labor Statistics
  • While the stimulus has thus far failed to foster economic revitalization in the private sector, it has created additional government jobs.
    • Since 2007, Pennsylvania has lost 217,000 private sector jobs, but added 13,500 government jobs.
    • Over the past year, the state has lost 171,000 jobs in the private sector, but added 6,400 onto government payrolls.
    • Unfortunately, the declining sector funds the growing sector, adding an increasing burden on working Pennsylvanians.

GOV. RENDELL’S TAX-BORROW-AND-SPEND POLICIES HAVE NOT IMPROVED PENNSYLVANIA’S ECONOMY

  • Despite spending billions on “economic development” Pennsylvania ranks 34th in job growth, 40th in personal income growth, and 42nd in population growth under Gov. Rendell.
    • A recent analysis shows that states spending the most on “economic development” have slower economic growth than those spending the least. Unfortunately, Pennsylvania spends more than any other state but one.
    • Conversely, states with lower tax burdens and states that have cut taxes have stronger growth than states with higher taxes and recent increases. Pennsylvania is both a high-tax state and a state with recent tax increases.

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