State proposal is one more regressive tax

Senate Majority Leader Joe Pittman (R-41) recently introduced legislation to cut Pennsylvania’s personal income tax rate from the current 3.07% to 2.8% and eliminate the Gross Receipts Tax on electricity.

This legislation is both deeply cynical and totally revealing of the unfortunate priorities of Republicans in Harrisburg. For it shows us that, once again, they have chosen to cut taxes for the rich rather than fund education fully and fairly.

Ever since a majority of the Basic Education Funding Commission (BEFC), with the support of Gov. Josh Shapiro, embraced a seven-year plan to meet the constitutional obligation to fund our schools, the Republicans have had only one response: “We can’t afford it.” They did not appeal the Commonwealth Court decision, which declares that the current system of funding schools is unconstitutional. They did not propose an alternative to the BEFC plan. They just said, “We can’t afford it,” even though the state has more than a $14 billion surplus.

But while they say we can’t afford to fund our schools, it appears they believe we can afford to cut the state’s personal income tax (PIT) by almost $1.6 billion per year in fiscal year 2026. Through fiscal year 2028-29 the cost of the PIT rate reduction would be $7.35 billion in state revenues. And they also call for the elimination of the Gross Receipts Tax on electricity which would reduce state revenues by $1.1 billion in fiscal year 2025-26 and a total of $4.57 through fiscal year 2028-29.

Because the PIT is a flat tax, most of the benefit of the personal income tax cut would flow to the richest Pennsylvanians. Our analysis shows that Pittman’s bill would, on average, reduce taxes for the top 1% of taxpayers with an average income of $1.9 million by $5,435 per year. It would reduce taxes for the middle 20% of families with an average income of $67,100 by $181. And because of the tax forgiveness program, it would most likely not reduce taxes for people in the bottom 20% by more than $20 per year.

Unfortunately, we can’t estimate the distributive impact of the reduction in the GRT on electricity which will reduce revenues by over $1 billion by fiscal year 2025-26 and almost $5 billion though fiscal year 2028-29. It might be slightly progressive or slightly regressive depending on (1) how much electricity is used by homeowners and how much by businesses and (2) whether electric use declines or increases in income. Nationwide the residential is about equal to commercial use of electricity. Given the plethora of electric devices these days, my guess is that electricity use rises roughly with income which means that the distributive impact of the GRT elimination would be about flat. It would certainly not make our tax system much fairer.

This is not the first time Republicans have chosen cutting taxes for the wealthy over funding education. Just two years ago, they forced Governor Wolf to accept a 60% reduction in the Corporate Net Income Tax (CNIT) to secure a small increase in school funding. That nearly $2 billion-per-year reduction in corporate tax revenues was in addition to the more than $4-billion-per-year reduction in corporate taxes over the last 20 years as a result of phasing out the Capital Stock and Transfer Tax and reducing the CNIT base under Governor Corbett.

These corporate tax cuts, along with our flat tax and overreliance on sales and property taxes, is why Pennsylvania has the fourth most regressive tax system of any state, in which the top 1% pay less than half the share of state and local taxes as families in the middle or bottom of the income distribution.

Marc Stier is executive director of the Pennsylvania Policy Center.


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