Who Pays? Pa.'s Tax System Grows More Regressive: Low-Income Pay Highest Share of Income in Taxes

Media Contacts:                                                             
Ellen Lyon, 717-255-7156, lyon@pennbpc.org

Jenice R. Robinson, 202.299-1066 x 27, Jenice@itep.org                                           

FULL REPORT

EXECUTIVE SUMMARY

PA DATA

HARRISBURG, Pa. (Jan. 14, 2015) – Pennsylvania’s ranking worsened on a biennial report card measuring the fairness of state and local taxes, according to a study released today by the Institute on Taxation and Economic Policy and the Pennsylvania Budget and Policy Center. 

Middle-income Pennsylvanians pay two times more in taxes as a share of income than the wealthiest earners, and the lowest-income earners pay three times more, the study found. Pennsylvanians in the top 1 percent of income actually saw a slight drop in the share of income they pay in taxes, from 4.4 percent in 2013 to 4.2 percent in 2015.

The fifth edition of the report Who Pays?: A Distributional Analysis of the Tax Systems in All Fifty States places Pennsylvania on the “Terrible 10” list of states with the most regressive tax systems for the fifth time, and lowers its rank from eighth worst in the nation two years ago to sixth worst now.  The report factored in all major state and local taxes, including personal and corporate income taxes, property taxes, sales taxes, and other excise taxes paid by non-elderly residents. Washington State is the most regressive, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana.

”Pennsylvania asks too much of low- and middle-income workers and not enough of its wealthiest citizens,” said Sharon Ward, director of PBPC. “Forty-two states have a graduated income tax. By enacting one here, too, Pennsylvania policymakers can show they stand with the middle-class.”

A state’s tax system is regressive when the lower one’s income, the higher one’s tax rate. Pennsylvania’s flat income tax, which fails to offset more regressive sales and property taxes, is the main contributor to its low overall rank.  Other factors include the lack of refundable income tax for low-income earners to offset sales, excise and property taxes; and the failure to adopt combined reporting to permanently close corporate tax loopholes.

“Our most vulnerable residents pay a disproportionately high share of their income in taxes when property and sales taxes are taken into account,” noted the Rev. Sandy Strauss, director of public advocacy for the Pennsylvania Council of Churches. “We believe all have a responsibility to pay a fair share in taxes, according to their ability to pay, so that struggling Pennsylvanians can survive and better support themselves and their families.”

Key Pennsylvania findings include:

  • Families earning less than $20,000 annually, the poorest fifth, pay 12 percent of income in state and local taxes, almost three times the share of the top 1 percent.
  • Middle-income taxpayers earning between $38,000 and $60,000 annually pay 10.3 percent of income in taxes, up from 10.1 percent in 2013.
  • The richest 1 percent of taxpayers, with incomes averaging $1,241,600 annually, pay 4.2 percent of income in taxes, less than in 2013.
  • The top 1 percent’s income grew four times as much since 2013 as the middle group’s income, 16.4 percent vs. 4.1 percent in non-inflation adjusted dollars.

"As one of Pennsylvania’s largest providers of free tax filing assistance to low-income households, we've seen first-hand for years the effect of regressive tax rates on the daily lives of the working poor. Levying high taxes on low wages is like trying to squeeze blood from a stone; it leaves state education and social programs underfunded and pushes more Pennsylvanians into poverty,” said Ken Regal, executive director of Just Harvest.

Gov.-elect Tom Wolf, who will be sworn in on Jan. 20, has made tax fairness a central goal of his administration. He has proposed revamping the tax system so that the middle-class, whose incomes stagnated, get a break, and wealthy earners pay more.

“Multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause this income divide, but they certainly exacerbate the problem. State policymakers should enact tax reform policies that will make their tax systems fairer.”

With incomes for working people stagnating, a flat tax system makes it harder to raise enough revenue to pay for education and health care. School districts across Pennsylvania experienced draconian state funding cuts in the last four years, and higher property taxes. Both problems could be reversed with a tax system that captures the income growth of the top 1 percent.

“It’s time to halt Pennsylvania’s steady march to the top of the most regressive tax system list,” Ward said. “A more progressive approach to income taxes, a refundable earned income tax credit for low-income families, and a commitment to close corporate tax loopholes once and for all will make our tax system fair for working- and middle-class Pennsylvanians.”

### 

The Institute on Taxation and Economic Policy is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP's mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.

The Pennsylvania Budget and Policy Center is a non-partisan policy research project that provides independent, credible analysis on state tax, budget and related policy matters, with attention to the impact of current or proposed policies on working families. To learn more, go to www.pennbpc.org.

AttachmentSize
PAcomparedtoNJ&WV.jpg144.19 KB
Who pays PA 2015.jpg63.31 KB
EXECUTIVE SUMMARY.pdf219.3 KB
UPDATED ITEP WP5 Complete Report.pdf1.42 MB
PaData.pdf78.29 KB