New Details on Proposed Tax Increase


As movement towards a budget deal progresses, more details have emerged regarding the sales tax increase we reported on yesterday.

Let's remember that before we ask working families to pay more, we need to address substantive fiscal reforms. This includes meaningful pension reform, real liquor privatization, and strong controls on property taxes.

The proposal calls for increasing the state rate to 7.25 percent—a 21 percent increase. Under the new tax rate, the state would collect about $2.1 billion more from consumers, or about $650 more per family of four.

All of this revenue would be used for property tax relief. In exchange, about $616 million in gambling money currently going to property tax relief would be redirected for additional spending (reportedly dedicated to pension payments). This results in a reduction in property taxes of about $470 per homeowner.

On net, this represents a tax increase of $190 per family of four.

Proposed Sales Tax Increase and Property Tax Shift
  Additional Revenue (millions) Transfer to Property Tax Relief Fund (millions) Per Family of Four Per Homeowner
Sales Tax Rate Raised to 7.25% $2,086.36 $2,086.36 $652.64 $663.78
Gambling Revenue from Slot Machines $0 -$616.20 -$192.76 -$196.05
Property Tax Relief   $1,470.16 $459.88 $467.74
Net Tax Increase   $616.20 $192.76 $196.05

The new sales tax rate of 7.25 percent would rank as the second highest state rate in the U.S., according to Tax Foundation data. Several states rank higher when considering the average of state and local tax rates.

However, Pennsylvania would have a higher state rate than any of its neighbors, with only New York having a higher combined state and local tax rate.

Philadelphia, which would have a 9.25 percent rate, and Pittsburgh (8.25%) would have among the highest tax rates in the region.

State State Rate State and Local Combined rate (weighted)
Delaware 0.00% 0.00%
Maryland 6.00% 6.00%
West Virginia 6.00% 6.07%
Ohio 5.75% 7.10%
New York 4.00% 8.48%
New Jersey 7.00% 6.97%
Pennsylvania (under proposal) 7.25% 7.59%
Pittsburgh (under proposal)   8.25%
Philadelphia (Under Proposal)   9.25%
Source: Tax Foundation,

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A Stealth Tax Increase?


Rumors about a proposed budget continue to swirl in Harrisburg. One such rumor is that the deal would include an increase in the sales tax rate to be used for property tax relief.

However, slots money that currently goes toward property tax relief would instead be spent on Gov. Wolf's priorities:

One new idea under discussion could provide a cornerstone of the cash Wolf is seeking: diverting the roughly $600 million in slot-machine gambling receipts that school districts currently pass along to homeowners as property tax reductions. That stream of money would shift to the state treasury, while negotiators are discussing an increase in the state sales tax to offset reductions in local school property taxes, another concept that is important to Wolf to improve equity in school funding.

This may be sold as a “dollar-for-dollar tax shift,” but represents anything but. In reality it would be a $600 million tax increase on working families.

That is, if the plan were to increase the sales tax by $2 billion next year, property taxes would only be cut by $1.4 billion—with $600 million directed to new spending.

That’s a backdoor tax increase on working families.

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Drop the "Phony Baloney" Liquor Reform


Rumors around the state capitol suggest legislative leaders are closer to a state budget deal. But shockingly, Gov. Wolf continues to hold out for his ill-advised liquor improvement scheme.

Wolf has stuck by his September counteroffer to hire a private manager to run the system, administration officials said.

Wolf's plan would keep the government monopoly—which as Bob noted last week, is running in the red thanks to unfunded pension costs. But the state would pay a private company to run the government liquor stores "like a business"—rather than let businesses actually sell liquor.

As we’ve pointed out, this plan does not give consumers any greater choice or convenience. It keeps the conflict of interest that has led to multiple cases of corruption. And it prevents the real privatization and competition nearly every other state has—and Pennsylvania voters overwhelming want.

Remember, this is the plan the Pittsburgh Post-Gazette called a "loser," Lehigh Valley Live called a "non-starter," and the Bucks County Courier Times called “phony baloney.”  

Gov. Wolf needs to drop his demands for an absurd liquor proposal that no one—save some government union leaders—wants.


Corporate Welfare and Cronyism in Bethlehem


Election day was a quiet affair in most communities, but in Bethlehem residents used the a local election to protest the appearance of cronyism in connection with a new corporate welfare program.

The Morning Call reports:

Outside Bethlehem City Hall, a handful of city residents waged a write-in campaign for an unusual albeit illegal candidate — Martin Tower.

City residents Barbara and Steve Diamond and their friend, Sonja Walker, were encouraging voters to write in the name "Martin Tower" instead of voting for City Council President J. William Reynolds.

The residents are particularly upset with Reynolds because he took donations from the owners of Martin Tower and didn't recuse himself from the first reading of the ordinance to rezone the property.

What does Martin Tower (the former home of Bethlehem Steel) and rezoning have to do with corporate welfare? Bethlehem is one of two cities in Pennsylvania with a special City Revitalization & Improvement Zone (CRIZ). These zones are designed to attract development by letting developers keep state and local tax revenue generated inside the zone. Martin Tower sits in a CRIZ.

The Pennsylvania Independent reports that the owners of Martin Tower originally planned to build residential communities, but after the CRIZ was established they began lobbying city council to rezone the property for retail stores--potentially increasing the property's value by millions.

It’s impossible to prove the presence of political favoritism, or a quid pro quo, at play in Bethlehem.

But it’s certainly true the developers stand to gain handsomely from the rezoning, and it’s true they donated to three of the members of the City Council responsible for making that decision.

The CRIZ program is giving untold power to local council officials to determine the winner and losers in the local economy. This special treatment for a few comes at the expense of the many. Even those on a left, like Stephen Herzenberg, executive director of Keystone Research Center, agree corporate welfare is unfair. Herzenberg says:

Anytime you have a very targeted subsidy for a business or one industry, there are going to be issues with whether that targeted subsidy lends itself to political favoritism, or at least the appearance of political favoritism.

There's a simple solution: It's time to end these corrupting programs. If Pennsylvania eliminated the nearly $700 million of corporate welfare subsidies the corporate income tax could be lowered from 9.99 to 7.2 percent, attracting genuine business investement.  Now that's a fairer way to revitalize communities.

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Dear Kids, I'm with the Union


On October 21, more than 100 days after his veto touched off Pennsylvania’s ongoing state budget impasse, Gov. Tom Wolf sent a letter to the Philadelphia Federation of Teachers saying “I am with you.” This has been his spoken—and unspoken—pledge to government unions across the state.

Had Wolf sent a letter to the schoolchildren of Pennsylvania, rather than a teachers union that gave nearly $900,000 to his election campaign, it may have read something like this:

Dear Schoolchildren of Pennsylvania,

You don’t have to be a “straight-A” student to notice public schools are borrowing money because I vetoed state education funding—several schools might even shut their doors if they don’t get money soon.

As your governor, I’ve noted, “It’s a problem. I understand that.” But I said “no” to schools asking me for an advance on state funding. “I’m holding out,” I said.

You see, I could have signed a budget that increased school funding—or even used the line-item veto so schoolchildren aren’t held hostage. But I vetoed the entire budget instead. As I explained, “I want to keep the pressure up.”

I could have agreed to temporary funding to keep schools opens.  I vetoed that too. Remember, I said, “I want a fight.”

I could try to work with Republicans to put your needs first, but I won’t give in. As I explained, “I’m not going to cave on this. I can’t cave on this.”

I wish I could help out, but like I told the Philadelphia Federation of teachers, I’m with the union.

Let’s face it, government unions gave $3.5 million to my campaign and spent millions more in union dues to support my election.

They expect a return on that investment.

That’s why I stripped Bill Green from his chairmanship of the School Reform Commission for supporting charter schools in Philadelphia. Yes, charters serve low-income, minority students, and most charters outperform other district schools. But the union doesn’t like charter schools. I’m with the union.

That’s why I forced the Chief Recovery Officer out of York—the state’s second-worst performing school district. The unions opposed the officer’s recovery plan to improve performance and save money. I’m with the union.

That’s why I want to cut funding for cyber charter school students and for special needs students in brick-and-mortar charter schools. Unions want to keep all students in union-dominated schools. And I’m with the union.

That’s why my administration stopped sending funds to charter schools during the budget impasse I created. Sure, state law lets us release funds when school districts refuse to pay, but unions complained. Sorry charter kids, I’m with the union.

That’s why my administration froze the tax credit scholarship programs, which allow thousands of kids to afford better schools. The tax code is still law, and everyone is still paying taxes. But I’m with the union, and, as I’ve said, “I want to keep the pressure up.”

But don’t worry, students—it’s not just you. I’m siding with unions over all Pennsylvanians. 

That’s why I vetoed liquor privatization—even though nearly every state lets private stores sell wine and liquor, and Pennsylvanians overwhelmingly want to see that here. I’m with the union.

That’s why I tried a backdoor executive order to unionize home care workers. Unions would like people simply providing care for a family member to pay union dues. I’m with the union.

That’s why I vetoed pension reform, too—even though my own former business offers 401(k)s. Our state may be more than $50 billion in pension debt, but I’m with the union.

That’s why I am negotiating contracts with union leaders in secret even though I publicly trumpet transparency. And that’s why I threatened to veto paycheck protection that gives unions an unfair political advantage. I’m with the union.

Again, please believe me that I feel your pain and suffering, but this isn’t about you. I’m with the union.

Best of Luck,

Governor Tom Wolf*

*This letter is satire, though the quotes from the governor are real. 

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A PLCB Special: Red Ink

NOVEMBER 3, 2015  | by BOB DICK

Supporters of the state liquor monopoly defend the Pennsylvania Liquor Control Board (PLCB) as a cash spigot for the state, which is one of the reasons they refuse to support privatization. But the agency's days as a cash cow are numbered.

According to the PLCB’s own report, it’s on the verge of insolvency. After changing its accounting practices to mirror those used in the private sector, the agency ended the year more than $238 million in the red. Chris Comisac of Capitolwire lays out the biggest reason why (paywall):

Not only did the new accounting requirements mandate annual changes in the pension liability and other actuarial assumptions be reflected against the fund’s net income, the PLCB had to record on its financial sheets its share of the State Employees’ Retirement System (SERS) unfunded liability.

That means the PLCB’s $362.7 million pension obligation (2.9 percent of SERS’ total $12.3 billion unfunded pension liability), when applied to the State Stores Fund, leaves the fund in a negative net position. Compared to last year when the fund had a net ending position that was more than $77 million dollars in the black, FY2014-15 ended at negative $238.7 million.

The rising cost of pensions, along with other personnel expenses is eating away at the liquor board’s profitability. Its reported net income was only $84 million after accounting for all expenses. This figure is much lower than the one reported back in August and the lowest since the 2010-2011 fiscal year.

The PLCB’s poor finances are confirmation of what we already know: the state’s government-run liquor system isn’t an asset for taxpayers, just an asset for those in positions of power who use the system to enrich themselves.  

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Union Dues fund SuperPAC Attack Ads


Pennsylvanians for Judicial Reform—a new "SuperPAC" (technically an "Independent Expenditure Committee") registered in August—has spent about $2.5 million on attack ads in the Pennsylvania Supreme Court race.

Who is funding the group? Not surprisingly, nearly half their money (45 percent) came from government unions—with the lion's share coming directly from union dues, not PAC contributions.

While union dues cannot be given directly to candidates, they can be used for independent expenditures and SuperPACs.

PA Judicial Reform Chart

The rest of Pennsylvanians for Judicial Reform's budget comes primarily from the political action committee of Philadelphia trial lawyers, the "Committee for a Better Tomorrow," and the unknown entity, "PA Alliance." Public Source investigated PA Alliance and found they too have union ties (and are linked with Pennsylvanians for Accountability, another union-funded attack group).

The problem isn't that unions give a lot, or even that they dominant political spending. The problem is government union dues and campaign contributions are collected at taxpayer expense using public resources.

Not only does this give government unions an unfair political advantage, it undercuts members' voice. Unlike every other political group, government union leaders never have to ask for contributions, they just take it out of workers' paychecks.

We need paycheck protection to protect government workers and taxpayers, and to promote accountable government.

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Sobering Results on The Nation’s Report Card


Over the last quarter century, national education scores in both reading and math have modestly trended upward—until this year.

The National Assessment of Educational Progress (NAEP) recently released its biannual report on 4th- and 8th-grade reading and math scores. The results are sobering.  

The report, known as the “Nation’s Report Card,” draws comparisons among states and reveals overall trends in education across the country. Specifically, it measures student proficiency at the national and state levels as well as at 21 district levels (Philadelphia included).

The national level showed virtually no “proficiency” increase in any grade level or subject category. The only increase in reading scores was among 4th-grade students with disabilities or those eligible for the National School Lunch Program. Meanwhile, 8th-grade scores decreased across the board among males, females, whites, blacks, and Hispanics, as well as in suburbs, towns, and rural areas.

In Pennsylvania, 4th- and 8th-grade reading and 4th-grade math scores remained stagnant, while 8th-grade math scores dropped to a low not seen since before 2007. The commonwealth performs favorably, compared with other states, in overall NAEP performance—but much of this is driven by demographics. After adjusting by race and income, Pennsylvania ranks 16th in NAEP performance, illustrating a sizable achievement gap.

Philadelphia specifically, where scores are typically well below the national average, saw drops in 4th-grade math and no significant growth anywhere else. Student achievement in Philadelphia is far below the major urban cities average, exceeding only Detroit, Cleveland, Baltimore, and Fresno. In fact, students in Philadelphia did not achieve proficiency rates above 20 percent in either subject matter or grade level. In other words, fewer than 1 in 5 Philadelphia students are on grade level in math or reading.

Students and families cannot afford to wait another two years to learn whether scores improve or continue declining. A solution to this disturbing reality is the expansion of educational options through the EITC and OSTC programs, which empower students to attend high-performing private schools and deliver cost-savings to taxpayers. Unfortunately, the EITC and OSTC programs are currently in limbo—held hostage by the Wolf administration as leverage for massive tax hikes.

The Nation’s Report Card results underscore the urgent need for expanded school choice in Pennsylvania. Our state's children deserve no less. 

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The Voluntary Deductions Facade

OCTOBER 29, 2015  | by BOB DICK

Paycheck protection detractors defend using taxpayer resources for partisan politics by insisting union members can voluntarily deduct political donations from their paychecks, but this excuse misses the point.

Taxpayers aren't offered a choice. They're forced to play a role in the political campaigns of government unions.

The purpose of paycheck protection is not to make all payroll deductions voluntary but to remove taxpayers from serving as the unions’ personal collection agency for political cash. Far from being voluntary, taxpayers are compelled to subsidize the political agenda of government unions.

But even if we ignore the forced association mandated by automatic dues and PAC deductions, there is still a problem with defending the practice as voluntary for union members. 

As my colleague Nate pointed out last month, many members don't know their union dues fund political activities. So if a state employee authorizes a payroll deduction for the full amount of union dues, it's possible they’re unknowingly sending their money to political causes they find distasteful.

John Cress, a teacher in Lawrence County, was just one of many who didn't know his union dues were being used for political activities

But what I didn't know was that the union would withold dues money out of my paycheck every month, like taxes, and spend it on political ads and causes that turn my stomach.

I'd always been told that union dues can't be used for politics—and I believed it.

If lawmakers were to pass paycheck protection legislation currently pending in the House, it would require unions to ask their members for a political donation, which is a much more transparent process than the one members operate under now. 

By adopting paycheck protection, teachers like John would no longer be left in the dark about their union's political spending habits, and taxpayers wouldn't be forced to subsidize the stealthy political operations of government unions.

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Holding All Schools Hostage


Fell Charter Elementary School near Scranton will stop paying teachers next month and the school is considering a four-day week thanks to the state budget stalemate.

Fell's announcement is just the latest reminder of Governor Wolf's strategy to leverage schools for tax hikes. First the governor withheld EITC and OSTC scholarship funds, which allow thousands of Pennsylvania kids to escape failing schools—even though these scholarships are part of the tax code which is still in effect.

Next, a handful of district schools stopped sending tuition payments to charter schools, which serve more than 100,000 kids in Pennsylvania. When the state began to pay charters by redirecting gaming revenue, districts vehmently protested, leading the Treasury to stop payments at the request of Senate Democrats.

It's not just students at charter schools that are pawns in Gov. Wolf's political game. District schools desperate for funding were told they could not seek loans from the state Treasury. This is in spite of the comparisons they made to a loan floated to House Democrats from the Treasury.

In short, all types of schools and students across the commonwealth are held hostage.

Yesterday, Auditor General Eugene DePasquale announced at least 27 school districts and two intermediate units are now borrowing money to stay open. That puts total borrowing at $431 million, plus an estimated $14 million in interest costs. DePasquale expects the number of borrowing districts to jump to 54 by Thanksgiving

Hours later, the state Senate tried once again to provide relief to schools by attempting a veto override of a stop-gap budget that would release four months of funding to schools and social service agencies. The move fell short by 3 votes.

As rumors of a new deal circulate one thing should be clear: No one wins by holding schools hostage for historic tax increases.

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