Pa. one of the most regressive tax states

In Pennsylvania, state taxes bite low- and middle-income households harder than they do affluent households.

In Pennsylvania, state taxes bite low- and middle-income households harder than they do affluent households. That’s the finding of a recent from the Institute on Taxation and Economic Policy.

According to the report, the poorest fifth of Pennsylvanians pay more than 11% of their income on state and local taxes. Those in the middle-income bracket pay nearly 10%. But the state’s wealthiest residents pay just 5%. Compare that to neighboring New Jersey, where the difference between what the richest and  poorest pay is around 1%. In Delaware, the top tier pays just half a percent less in taxes of their overall earnings than lower income people.

Sharon Ward is Director of the Pennsylvania Budget and Policy Center, a liberal think tank.

Ward: The problem is that sales taxes and property taxes are regressive taxes.

Regressive. What does that mean? Here’s the idea: if you buy a TV – the sales tax is the same whether you work flipping burgers on South Street or billing hours at the law firm of Ballard Spahr. Same with property taxes. Neither tax is pegged to your ability to pay.

Pennsylvania’s income tax also has a flat rate, unlike New Jersey and Delaware, which have graduated income taxes – meaning the well-off pay a higher rate. Sharon Ward:

Ward: In states with a graduated income tax, that tax helps to offset the more regressive taxes. Pennsylvania, with its flat tax, means that that type of offsetting just doesn’t occur.

These flat tax rates are baked into the Pennsylvania state constitution, which would have to be amended to allow graduated taxes.

State Representative Josh Shapiro advocates such a change, but the Montgomery County Democrat doubts the legislature would have an appetite for it.

Shapiro: That is a very very difficult process, but it’s a process that we should not be afraid of, and it’s a dialogue that we should really begin in earnest, particularly in light of the studies that have recently come out.

Conservative policy analysts agree the tax system is broken – but disagree that progressive tax rates are the cure.

Nathan Benefield is Director of Policy Research for the Commonwealth Foundation, a conservative think tank. He says while the divide between rich and poor is troubling, the most dramatic improvement for both will come from general tax relief. That can only happen, he says, if the state cuts back spending.

Benefield: Unless you address the spending side of the ledger and try and reduce overall spending, you can’t do much with the tax burden.

Shapiro says the state should look to cut some spending. But Sharon Ward says lawmakers can find other sources of revenue.

Ward: And they can do that by closing some corporate tax loopholes, and ensuring that all corporate taxpayers are paying their fair share.