The New York Times reports that Pennsylvania Gov. Edward Rendell (D) is proposing to raise the state’s individual income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. from 3.07 percent to 3.57 percent for three years, after which it will drop back down to today’s levels. Rendell justified this increase by stating that Pennsylvania has the second-lowest income tax among the 41 states that currently have one. On top of this, Rendell wants to increase per-pack cigarette tax by 10 cents, from $1.35 to $1.45, and he wants to raise an additional $50 million by taxing smokeless tobacco.
Rendell’s comments concerning Pennsylvanians’ tax burden are misleading. While Rendell cites the state tax burden as 41st among all states, the Tax Foundation’s State-Local Tax Burdens report calculates Pennsylvanian’s total state-local tax burden from all taxes at 10.2%. This is the 11th highest nationally, above the national average of 9.7%.
Rendell’s proposed 16% increase in the state’s flat income tax, combined with already high local income tax rates, would be a further burden on production and income in a tough time for Pennsylvania’s economy. High income earners might opt instead for Virginia, an hour away, with its significantly lower income tax rate, lower sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , lower property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. , and the lowest minimum wage in the country—not to mention the world’s oldest edible cured ham.
People heading for the highway wouldn’t be good for tax receipts over the long term. The Commonwealth Foundation projected that Rendell’s tax increase proposal would result in 23,960 fewer jobs next year. Combining the direct loss in income and the indirect effect of anti-growth policies, Pennsylvanians might start heading south this winter.
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