As Democrats get ready to force through Biden’s coronavirus relief bill containing billions in aid to states, one Democrat governor isn’t waiting around to see if that happens.
Pennsylania Governor Tom Wolf has become the first Democrat governor to propose an increase in state income taxes, and wants to funnel almost half of the gains to schools, many of which have been partially or fully shut down for the last 11 months. The rest of the increase would fill a budget shortfall caused by the coronavirus–and Wolf’s response to it, which caused many businesses to shut down for significant periods of time, costing the state tax revenue.
Wolf’s initial budget proposal for the next fiscal year beginning July 2021 calls for a massive jump from 3.07% to 4.49%, which Wolf expects to bring in almost $3 billion more per year. PennLive.com reported that it could be the largest tax increase in the state’s history, with some taxpayers seeing a 46% increase in their state taxes.
But Wolf was quick to point out that the majority of taxpayers will actually see a cut because of a tiered system where lower income earners will get tax forgiveness. A family of four making less than $85,000 will get a tax cut, and those with $50,000 or less in earnings will not pay any state income taxes.
Most taxpayers would benefit
According to Wolf’s calculations, 67% of taxpayers would see their taxes stay the same or be reduced, while the top third would pay thousands more each year. With the change, Pennsylvania would join 32 other states that have graduated income taxes where those with higher incomes pay more.
Of the nine states with a flat income tax, Pennsylvania was the lowest, but seven states have no state income tax at all.
Wolf’s budget also calls for a severance tax on shale oil production in the state and an increase in the state’s minimum wage to $12 per hour, with 50-cent yearly increases until it hits $15 per hour.
Critics say such a drastic increase in the minimum wage would hurt small businesses and may end up with a net job loss if employers are forced to cut jobs to make their ends meet.
What Wolf doesn’t realize
Wolf’s calculations for how much income the tax increases will gain the state could be flawed because of a factor Wolf doesn’t seem to have realized.
When states raise taxes on upper income earners, particularly in a drastic way, the risk is that a significant number of those earners will move out of the state, taking their businesses and high earnings with them.
The coronavirus has already made people far more mobile than they ever used to be, and people are fleeing from places with high taxation and restrictive environments, like Pennsylvania has had during the coronavirus.
Wolf may end up costing Pennsylvania more revenue than he thinks with his plans, if the Republican-dominated legislature in the state doesn’t put the kibosh on his lofty increases.