Our opinion: Income tax deserves more looks
Five Democratic legislators have proposed changing the state income tax to make it less regressive, but it has scant chance of passage in the divided Legislature.
Still, the proposal demonstrates how the state’s flat-rate income tax adversely affects lower-income taxpayers.
Pennsylvania is among the 41 states that impose personal income taxes, and among the 11 in that group that do so with a universal flat rate. The state’s 3.07% flat personal income tax rate is on the low end of the range that states assess.
In several states, conservative legislators have proposed moving from progressive rates that increase according to income, to flat rates, arguing that it’s fairer for everyone to pay the same rate.
But as the new initiative in Pennsylvania shows, the flat rate is anything but truly flat in terms of the percentage of total income lost to taxes. An analysis by the progressive Pennsylvania Budget and Policy Center found, for example, that the 20% of the state’s families with the lowest incomes pay about 14% of their income in state and local taxes, whereas taxpayers in the top 1% pay about 6% of their incomes in those taxes.
“It’s the height of absurdity that the bottom 60% of income earners are, on average, paying nearly double the tax rate of what the richest Pennsylvanians pay,” state Rep. Chris Rabb said.
He, along with fellow Democratic Reps. Elizabeth Fiedler and Rick Krajewski of Philadelphia, Sara Innamorato of Allegheny County and Joshua Siegel of Lehigh County, propose making the tax more progressive.
One option, for example, would decrease the personal income tax on wages and interest by 8%, from 3.07% to 2.8%, while increasing to 6.5% the levy on “passive income” such as dividends, gambling winnings, profits derived from rents, and other categories.
The group also offered several other options that would reduce the levy on direct wages and increase it on other nonwage taxable income. The lawmakers project that the change would increase state revenue by at least $2.6 billion at a time when the government projects significant budget deficits in the second half of the decade.
The Legislature, now embarked on a five-year project to vastly reduce the corporate net income tax rate, should strive to make personal income taxation less regressive.