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Tax policy? It depends.

Published by Matt Nussbaum on .

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The details of tax policy, more than almost anything else in politics, make people’s eyes glaze over.

It’s a shame that the nitty-gritty of taxes is so often ignored, because terms like “job killing tax hikes” remain ubiquitous – and virtually meaningless.

So here’s an attempt to have an honest look at the income tax in Pennsylvania.

First, it’s important to note that Section 1 of the Pennsylvania State Constitution says, in part: “All taxes shall be uniform, upon the same class of subjects…” The state Supreme Court has interpreted this to prohibit a graduated income tax (like the one the federal government, and most other states, have). For this reason, a proposal to make the income tax more progressive has to either amend the constitution, or take an approach that exempts a certain level of income.

Gov. Tom Corbett’s campaign has been hitting Democrat Tom Wolf hard lately on his tax proposals. The aim, naturally, is to paint Mr. Wolf as a “tax-and-spend liberal” – it is the tried and true Republican handbook, just as Democrats work to paint Gov. Corbett as a cold-hearted ally of the rich.

The Corbett campaign has recently taken to targeting Mr. Wolf’s proposal to make Pennsylvania’s income tax – currently a flat 3.07 percent – more progressive. The hits have been coming since Mr. Wolf told the Post-Gazette that he is “still working on the mathematics” of his income tax proposal.

Mr. Wolf has not released a detailed proposal, but he has made his intention clear: make the income tax more progressive by raising the level of income that is totally exempt, and then increasing the flat rate on income above that.

So let’s say – and this is me saying it, not Tom Wolf – that the exemption level is $60,000 for a household and the new rate is 5 percent. Again, these are just numbers I’ve plucked from the air – well, actually I’ve modeled them on Pennsylvania’s neighbors. But we’ll get to that in a second. Wolf has indicated that he would likely set the exemption at a higher level.

At the $60,000 exemption and a 5 percent flat rate, here is how things would change:

-- A family making $50,000 a year pays about $1,535 under the current rate; in our hypothetical, that family would pay $0.
--A family making $100,000 a year pays about $3,070 now; in our hypothetical, that family would pay $2,000. (No tax on the first $60,000, 5 percent on the next $40,000)
--A family making $1,000,000 a year pays about $30,700 now; in our hypothetical, that family would pay $47,000.

To be clear: these numbers are instructive only in so much as they explain how an exemption level with a higher rate would work; since we don’t have a specific proposal from Mr. Wolf, we have to use the hypothetical.

Now, that’s enough hypotheticals. Let’s take a look at Pennsylvania’s taxes compared to neighboring states.

The graph below shows the income tax bracket that a couple making $100,000 falls in living in one of Pennsylvania’s neighbors.

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All of PA’s neighbors also have a graduated income tax. If you are interested in the rates, check out the charts below, provided by the Tax Foundation.

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Matt Nussbaum, This email address is being protected from spambots. You need JavaScript enabled to view it. , 412-263-1504 or on Twitter @MatthewNussbaum.

(Top image: Ximagination/iStock)

 

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