Pennsylvania State Budget
As part of his 2015-16 budget proposal, Gov. Tom Wolf has proposed using some revenue from increased state taxes for school property tax relief beginning in 2016-17. This policy brief examines more closely the proposed tax shift.
A severance tax must be considered in light of the state’s total tax structure. Pennsylvania taxes the natural gas industry in many ways that don’t exist in other drilling states. For example, there is no corporate income tax or personal income tax in Texas or Wyoming, and the corporate income tax in West Virginia is 6.5%, compared to Pennsylvania’s 9.99% rate.
State law empowers government unions to be the exclusive representative of employees during contract negotiations with an employer. This is known as collective bargaining. Negotiations can have far reaching implications because they set compensation for tens of thousands of public employees, costing Pennsylvania taxpayers billions of dollars a year. Despite the enormous impact on taxpayers, the negotiation process is shrouded in secrecy.
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School districts that receive the most in state funding today would also be the biggest winners under Gov. Tom Wolf's proposal for property tax rebates. Gov. Wolf’s proposed tax shift fails to deliver universal property tax relief, creates winners and losers (mostly losers) among school districts, offers no guarantee of lower property taxes, and creates an unfair system of doling out state money unrelated to tax burdens.
Our most recent policy brief takes a look at Gov. Wolf's proposed property tax shift, part of his 2015-16 budget proposal. As we've noted, Wolf's plan would not provide property tax relief for at least one year after state taxes go up, and only 30 cents out of every dollar in new state taxes would go towards property tax relief in the first two years.
Moreover, Wolf's plan results in a net tax increase of around $1,400 per family of four, both next year and again in 2016-17 after the plan is fully implemented.
A separate analysis from the House Republican Appropriations Committee finds that 80 percent of school districts would be "losers" under this shift. That is, residents would pay more in sales and income tax increases than the district would get for property tax rebates. This analysis doesn't even consider that tax rebates would occur one year after tax increase, or the other state taxes Gov. Wolf is proposing to raise.
Our new analysis finds:
- Across the state, the disparity in property tax relief under Gov. Wolf’s proposal varies widely. Based on current homestead exemptions, school districts would receive between $301 and $5,209 per homeowner.
- The top 20 districts would get an average allocation of $2,860 per homeowner. The bottom 20 would get an average of $477 per homeowner.
- The redistribution favors districts that currently receive most of their funding from state taxes, while districts getting the least relief currently raise more than 60 percent of their funding from local taxes.
- Philadelphia would receive some property tax relief, along with reductions in the city's wage tax, sales tax and elimination of the local cigarette tax—essentially exempting Philadelphia residents from the statewide tax increase.
Last week, CF President & CEO Matthew Brouillette appeared on PCN’s Call-In Program with Steve Herzenberg, the Executive Director of the Keystone Research Center, to discuss Gov. Wolf’s costly budget proposal. While Herzenberg defends Wolf’s budget proposal, Matt points to some of the hard realities it will bring to every family in Pennsylvania.
Even though Gov. Wolf campaigned on a promise to not raise taxes on middle class families, his budget proposal would hit them with the largest tax increase in the state’s history.
In attempt to soften the blow of this broken promise, Gov. Wolf wants to implement property tax rebates. Matt explains that even this will fail to help Pennsylvanians since, over the next two years, less than $0.30 of every dollar in new state taxes will be used for property tax rebates.
Rather than put a heavier burden on Pennsylvania’s taxpayers, Matt explains that the government’s focus should be on “creating opportunities for everyone and reduc[ing] the burden of entry into the workplace and the middle class that are trying to grow businesses.”
Watch the full discussion on PCN’s Call-In Program.
During the gubernatorial campaign, Tom Wolf promised not to raise taxes on middle class Pennsylvanians. Despite this promise, the governor proposed a budget including the largest tax increase in the commonwealth’s history—a tax increase sure to hit Pennsylvanians of all income levels.
Under Gov. Wolf’s plan, taxes on income, sales, energy, tobacco, banks, and lottery winners would soar. Additionally, Gov. Wolf plans not only to increase the sales tax, but expand the list of items taxed under the higher rate.
To illustrate how Gov. Wolf’s proposal would leave Pennsylvanians with less, we applied his 6.6 percent sales tax increase to a fraction of the 45 newly taxed items under his plan. A single mother sending her child to daycare, a senior, like Kermit Bell’s mother, who relies on home care for her dementia, and a college student trying to further his or her education will all be hit under this sales tax increase.
Here are just five scenarios whereby Pennsylvanians could pay more to cover the gigantic increases in state spending:
- The average college student, who generally does not have a lot of disposable income, could pay approximately $79 more in taxes when purchasing textbooks.
- A family who has an infant in day care would see approximately $746 annually in new taxes on day care services.
- Making funeral arrangements is never easy, but under Gov. Wolf's plan, grieving families would have it a bit harder as they may need to figure out how to cover $465 in additional taxes on funeral services.
- The governor's proposal would hit those those currently living in a nursing home the hardest. If the sales tax were applied to the average cost of nursuing home services, it could increase the price by $6,890 per year.
- If families opted to have a loved one cared for at home, the tax bill on home care services could reach $3,020 annually.
Here is a list of the goods and services that would now be taxed under Gov. Wolf's proposal, as outlined by the Pennsylvania Department of Revenue:
Motion and Video Pictures
Financial Investment Activities
Real Estate Agent and Broker Services
Business Support Services
Travel Arrangement Services
Other Support, Office Administrative,
and Facilities Support
Home Health Care Services
Other Ambulatory Health Care Services
Nursing and Residential Care Facilities
Museums, Historical Sites, and
Amusement and Recreation Industries
Recreational Vehicle Parks and Camps
Personal Care Services
Death Care Services
Dry-cleaning and Laundry Services
Other Personal Services
Specialized Design Services
Scientific Research and Development Services
Professional Services, Architectural, Computer
Candy & Gum
Personal Hygiene Products
Caskets & Burial Vaults
Catalogs & Direct Mail Advertising
Construction of Memorials
Uniform Commerical Code Filing Fees
Investment Metal Bullion and Gold
While the governor insists property tax relief would ease the burden of his tax increases, the relief would not arrive until a year after the tax increases kick in, if at all. This sales tax increase and expansion is projected to take $1.6 billion out of the private economy next year and nearly $4 billion per year when fully implemented.
In addition to stunting economic growth, this tax increase would directly affect the standard of living for Pennsylvanians, as a larger percentage of their incomes would be devoted to paying higher taxes, leaving fewer dollars for their own needs.
This isn’t what Gov. Wolf promised during the campaign.
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