The war of words between legislative Republicans and Gov. Tom Wolf’s administration regarding the governor’s budget proposal picked up Thursday with the release of the Independent Fiscal Office’s analysis of Wolf’s spending plan.
The reason for the escalation? The IFO’s analysis shows that every income bracket in Pennsylvania will end up paying more taxes under Wolf’s plan.
“The analysis finds a net tax increase for all groups …” said the report.
Looking ahead to the 2018-19 fiscal year, when all of the governor’s planned tax proposals will have been fully implemented, the IFO estimates all Pennsylvanians, regardless of income, will end up paying a net increase in taxes of $3.57 billion.
Breaking the population down into six separate income brackets, the outcome was the same — a net increase in taxes for each bracket — although the amount varied depending on the income bracket.
For those with annual household incomes of less than $25,000, the net total increase was $8 million. That’s not an incredibly significant amount when considered against the $3.57 billion total increase for all Pennsylvanians, and if the proposed cigarette tax hike is removed from the equation, that income group would experience a net reduction of $118 million, according to the IFO.
However, for the rest of the income brackets, the same cannot be said.
For those between $25,000 and $49,999, the net tax increase would be $316 million ($167 million without the cigarette tax); for the $50,000 to $74,999 bracket, the increase would be $503 million ($409 million without the cigarette tax); and the increase would be $461 million for the $75,000 to $99,999 bracket ($382 million minus the cigarette tax).
Once income goes above $100,000, the numbers are a lot bigger: for those in the $100,000 to $249,999 bracket, the net increase is $1.271 billion ($1.194 billion without the cigarette tax); and for those with annual household income of $275,000 or greater, the net increase is a bit more than $1 billion ($983 million without the cigarette tax). The IFO also notes that for the last bracket, any property tax relief within the Wolf plan is offset by an increase in sales tax and income taxes. The report also said the last income bracket has a slightly lower overall tax burden compared to the next lower tax bracket due to “the high level of savings for that group, which is less sensitive to changes in the sales tax rate or base expansion.”
Wolf’s proposal would make the state’s tax system “considerably more progressive,” said the IFO. Increased progressivity of Pennsylvania’s tax system was something Wolf mentioned as a goal often during the gubernatorial campaign.
“… the analysis finds that high-income residents will bear most of the economic incidence of tax changes that are not exported to non-residents or offset by the federal tax system,” said the IFO in their report, noting the top two income groups will pay nearly two-thirds of the tax burden while those with annual household income below $50,000 will pay roughly one-tenth of the overall burden.
The analysis was not embraced by the Wolf administration, which stuck to its claims of a tax cut for most average Pennsylvanians, and suggested the IFO may have assumed some things differently than the administration, such as higher energy costs due to a natural gas severance tax.
“Gov. Wolf’s proposed budget fixes a $2.3 billion deficit without gimmicks, makes historic investments in education at all levels, and provides much-needed tax relief for middle-class homeowners,” wrote Wolf spokesman Jeff Sheridan in an email.
“The Department of Revenue analysis of the governor’s plan concludes that the average Pennsylvania family of four that owns a home and makes $100,000 or less will receive a net tax cut,” continued Sheridan. That analysis, according to the administration, did not factor in the cigarette tax burden.
“The Department of Revenue has access to more sophisticated information on consumer spending habits, which is why we are confident that Gov. Wolf’s plan will deliver tax relief to middle-class families and seniors,” concluded Sheridan.
That information on consumer spending habits used by the Revenue Department came from the U.S. Census Bureau’s consumer expenditure survey data. That also happens to be the source of the information used by the IFO for its analysis.
IFO Director Matt Knittel said they used the consumer expenditure survey, which is the standard data source for tax incidence models contained in the IFO analysis.
Knittel added that if the administration has other information that would improve the IFO’s analysis, his agency would be happy to have it shared with them. He indicated the IFO and the Revenue Department have had a good working relationship, sharing information in the past.
The IFO analysis also did not go unnoticed by some of the loudest critics of Wolf’s budget proposal: the state House of Representatives’ Republican Caucus.
“The IFO’s report on the governor’s proposed tax increases is a telling portrayal of how the governor’s massive tax increases will force all Pennsylvania taxpayers to pay more for everything from day care, nursing home care, utilities, newspapers and more, yet fail to deliver on the net tax decreases promised by the governor,” said House Appropriations Committee Majority Chairman Bill Adolph, R-Delaware, in a press release issued Thursday afternoon.
The House GOP Caucus, not long after the governor announced his budget plans, produced a website showing how residents in all but 94 of the state’s 500 school districts would end up paying a net increase in taxes under the Wolf budget proposal.
Pointing out the IFO’s determination that all income groups would pay a net increase in taxes, Adolph added: “This is significant because it directly contradicts claims made by the governor in his budget speech on March 3 and reiterated again and again during our budget hearings by his top staff.”
“… The governor’s proposed budget is a huge tax grab that increases state spending by 16 percent and fails to deliver on the promises of net tax reductions being touted by the governor,” said Adolph. “As we work to get a sustainable budget signed into law by June 30, we owe it to the taxpayers of Pennsylvania to be completely transparent about how they will be impacted by the issues we address in Harrisburg.”