Is Pennsylvania’s Income Tax Too Low?

Is an income tax hike in Pennsylvania’s future? Over the weekend, Charles Thompson of PennLive reported on the possibility, citing multiple sources who would not rule out a personal income tax (PIT) increase to pay for Gov. Wolf’s spending in the budget framework.

The state’s PIT rate is one of the lowest in the nation, ranking 8th, according to the Tax Foundation. This however, excludes the seven states with no income tax and two (New Hampshire and Tennessee) that only tax investment earnings. 

However, because it is a flat tax, it also one of the highest bottom tax rates in the country. That is 35 states have a lower starting rate (or no income tax on wages). This means raising the income tax is guaranteed to hit working families struggling to pay their own bills.   

Overall, an income tax increase will have a significant impact on all families, and our overall economy. Already, the state’s total tax burden is the 10th highest burden in the country—or more than $17,000 per family of four. On a per capita basis, the burden amounts to $3,224 in state taxes and $4,374 for both state and local taxes.

With the tax burden already high, Pennsylvania’s poor rankings in the Tax Foundation’s 2016 State Business Tax Climate Index should not come as a surprise. Of the five major taxes assessed, Pennsylvania ranked 25 or lower on four of them:

  • Corporate Tax: 47
  • Income Tax: 17
  • Sales Tax: 25
  • Unemployment Insurance Tax: 50
  • Property Tax: 38

The income tax is the only relatively decent ranking, which should make raising the rate a non-starter. Frankly, the poor rankings should preclude a hike in any tax rate. Pennsylvania does not have a revenue problem. It has a spending problem.

While it may take longer to find and implement spending reforms, it beats rushing to pass a budget with unnecessary tax increases on working families for the sake of “getting it done.”