February 9, 2016
Say this for Gov. Tom Wolf.
He does not cheat himself when it comes to asking for tax increases.
One year after fiscal conservatives in the state House fought Wolf to a stalemate over higher taxes in the 2015-16 budget cycle (so far), Wolf went back to the well Tuesday in his 2016-17 budget proposal.
In fact, the governor would even draw more taxes on the paycheck you probably received last week, setting a new personal income tax rate at 3.4 percent, retroactive to Jan. 1.
He asked the Legislature Tuesday for what would be one of the biggest tax increases in state history: $2.7 billion through 2016-17 fiscal year, and this time, there are no school property tax cuts to offset it.
If approved on Wolf's schedule, the new taxes would also raise $892.6 million in the current fiscal year, enough to balance the 2015-16 budget at the $30.8 billion spending level the governor is still seeking.
Wolf is making his case on two major premises:
* He says most of the planks follow the revenue package that the administration claims legislative leaders had agreed to present to lawmakers if the aborted "framework" budget deal negotiated last fall had passed.
Republican Senate leaders - who did pass the so-called "framework" budget last December before it stalled in the House - hotly disputed that assertion after the governor's address.
And they certainly weren't ready to agree to them Tuesday.
"I am just tired of this governor pitting taxpayers against educators," Senate President Pro Tempore Joe Scarnati, R-Jefferson County, said after hearing Wolf's predict school funding and other cuts if his taxes aren't passed.
"We're for taxpayers... we're for more education," Scarnati said. "But by damn, you have to strike a balance around here, and he's missing the balance."
* The tax increases are needed, in Wolf's view, to end a string of deficit budgets that have been closed only through fund transfers, one-time accounting maneuvers, and disinvestment in schools and other vital services.
As the governor put it during his mid-day address:
"Pennsylvania faces a massive structural deficit that will only continue to grow if we fail to address it responsibly. This deficit isn't just a cloud hanging over Pennsylvania's long-term future. It is a time bomb, ticking away, right now, even as I speak.
"If it explodes – if the people in this chamber allow it to explode – then Pennsylvania will experience a fiscal catastrophe the likes of which we have never seen," Wolf said.
Here's the full tax menu in Wolf's new plan, which the governor said is needed to get state aid for public schools back to pre-Corbett levels, and to eliminate a persistent gap between annual expenses and revenues.
The proposed tax changes are presented here from the biggest to smallest. All would require legislative approval to be enacted, but this is what's on the table:
Personal income tax.
Wolf's package would raise the PIT from 3.07 percent to 3.4 percent, retroactive to Jan. 1, 2016. It is a 10.7 percent increase that would raise the tax bill for a person at the per capita income of $45,046 a year from $1,383 to $1,532.
On one level, Pennsylvania would still have a relatively low state income tax rate when compared to other states. Even at 3.4 percent, it would rank 39th among the 41 states that tax personal wages.
But the $149 increase for our hypothetical earner would also propel the Pennsylvania into the Top 10 of all states in terms of combined state and local tax burdens, according to the non-partisan Tax Foundation.
In the foundation's most recent rankings, Pennsylvania ranked 15th. At Wolf's proposed income tax level, we would rise above Hawaii, Maine, Massachusetts, Vermont and Oregon, assuming no changes in those states.
The income tax increase will generate $1.294 billion through 2016-17.
Wolf proposes raising the state tax on a pack of cigarettes from $1.60 to $2.60, effective April 1.
According to the Campaign for Tobacco-Free Kids, that would also put Pennsylvania's cigarette tax rate into the top ten of all states.
The flip side, public health advocates would note, is that the new tax could price a new generation of smokers right out of the market, and cause some current smokers to reconsider their habit.
The increase is expected, in its first full year, to raise an additional $468.1 million for the state budget.
Sales tax expansion.
Unlike last year, Wolf's budget proposal does not change the current 6 percent sales tax rate. But it does apply that tax to three categories of goods that have, until now, been exempted.
The sales tax, in Wolf's budget, would newly apply effective April 1 to basic cable television services, movie theater tickets, and digital downloads - think ebooks or a song brought from iTunes.
If approved, Wolf's budget office has these changes generating $414.6 million in 2016-17.
Sticking to a 2014 campaign promise, Wolf is back asking for the new severance tax on gas produced from Pennsylvania's newly-tapped Marcellus Shale natural gas reserves.
Republican legislative leaders balked at this idea last year.
The shale tax would be set at 6.5 percent, generating an estimated $217.8 million for the state next year, after revenues collected under the current impact fees are swept off and delivered to counties and local governments.
Wolf's severance tax would take effect in July.
There is significant legislative and popular support for a new tax on Pennsylvania's next great natural treasure, but also some concern from the business community that too high a tax on drillers could make the industry less competitive in Pennsylvania long-term.
Tax on other tobacco products.
Wolf would, for the first time, impose a state tobacco tax on non-cigarette tobacco products, including chewing tobacco, snuff, large cigars and e-cigarettes, all effective May 1, and loose tobacco effective July 1.
The proposed tax, set at 40 percent of wholesale price, would raise about $136 million for the state, according to Wolf's figures.
Insurance premiums tax.
Wolf's plan would generate about $100.9 million from 2016-17 through a .5 percent surcharge on insurance premiums paid on property, fire and casualty insurance policies.
The rate is currently 2 percent.
The governor would also set this tax effective retroactive to Jan. 1, 2016.
Taxing promotional play at casinos.
This new niche tax is aimed at slots games provided free to gamblers by the state's 12 casino operators.
Casinos generally use these free players either to give incentives to new players to sign up for company player loyalty cards, or to reward those card-holders for being regular customers.
According to Pennsylvania Gaming Control Board figures, these so-called "promotional plays" make up about 2.1 percent of all slots play.
The administration's plan calls for a tax of 8 percent on these, a lower rate than that currently assessed on slots or table games. It would be worth $50.9 million on an annual basis.
Bank Shares tax.
This 11 percent increase in the existing tax on banks and other financial businesses would generate a projected $39.2 million for the state annually.