Budget Facts 2009: Personal Income Tax and Job Losses
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|
|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|
|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.
- 16% Income Tax Increase Will Cost 24,000 Jobs
- Tax Everyone But the Guy Behind the Tree
- The Path to Prosperity
- Six Years of Rendell’s Stimulus is Enough
- NFIB: Rendell Underestimates Impact of Tax Proposals on Small Business
More Budget Facts
- Pennsylvania State Budget Overview
- Spending Increases by Department
- State Education Spending
- Natural Gas Severance Tax
- Cigarette Taxes