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What Project 2025 Means for Pennsylvania Taxpayers

By Blog Post, Policy Briefs, Policy Report

If the federal government in Donald Trump’s potential second term were to adopt the tax proposals in Project 2025, low- and moderate-income Pennsylvanians would pay far more in taxes than they do now and the top 1% would pay much less.

That should worry Pennsylvanians. For, if we follow the letter of what Project 2025 proposes, a family of four at the state median income level would pay an additional $7,167 in taxes. And a family of four with an annual income of $50,000 would pay $7,031 in federal taxes. But a family of four that just breaks into the top 1% of Pennsylvania families, with $750,000 in income, would pay $12,675 less in federal taxes.

If, contrary to what Project 2025 explicitly says, we assume that earned income and child tax credits are not repealed, the increase in taxes for a family of four with $119,000 in income would be only $3,167, while the increase for a family of four with $50,000 in income would be $1,040. A family of four with an income of $750,000 would still receive a huge tax cut of $12,675.

And note that these changes in paid taxes do not include the proposed limit on the deductibility of employee benefits, including paid health care, discussed below. That limit would raise taxes for many middle-income Pennsylvanians. Also not included in the analysis are reductions in the tax rate on capital gains and corporate profits, which would reduce taxes for the top 1%.

Recognizing the danger of the extreme Project 2025 agenda on taxes and other issues for his political prospects, Donald Trump has disavowed knowledge of or support for Project 2025. But alumni of Trump’s first administration wrote much of it. If one looks at the connections between Trump and the authors of Project 2025, it’s likely that a second Trump administration would certainly be staffed and guided by those who wrote the plan.

More importantly, the tax proposals in Project 2025 are even worse than what Trump sought and achieved with his 2017 tax cuts. The 2017 tax cuts were heavily tilted to wealthy multinational corporations and to the rich, who received a disproportionate share of the benefits. The Project 2025 tax proposal would add additional tax cuts for those who already pay too little but would raise taxes on those with low and moderate incomes.

So, let’s take a closer look at why the Project 2025 tax proposals lead to results so harmful to low- and moderate-income Pennsylvanians, while helping those at the top, first with regard to individual taxes and then corporate taxes. Keep in mind that there are limitations to how precise our analysis can be, both because the Project 2025 proposal is not terribly detailed and because the precise implications of some of their proposals require a far more detailed analysis than we can do for this preliminary report.

Individual Taxes

Currently, there are seven marginal rates in the federal income tax: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These tax rates are tied to inflation-adjusted federal income tax brackets. And remember that a marginal tax rate means that a taxpayer pays that rate only for income above the threshold for their tax bracket. For example, for couples filing jointly, the 12% rate applies to annual income over $23,200 and below $94,301. The 32% rate applies to income above $383,900 but below $487,451. The 37% rate apples to income over $731,000.

Project 2025 proposes a reduction of our seven personal income tax rates to two, an initial one at 15% and a second one at 30% beginning at the “social security wage base,” which is currently $168,600 (Project 2025, p. 696.) It also proposes to “eliminate most deductions, credits and exclusions.” It’s not totally clear whether that means eliminating the standard deduction since the document also says that the goal of the plan is to create a “nearly flat tax on wage income beyond the standard deduction.”  For the purpose of this brief, we are assuming that the standard deduction would remain unchanged. And because Project 2025 is not as clear as it should be about whether the Child Tax Credit and Earned Income Tax Credit would be repealed, we are analyzing the impact of Project 2025 under both scenarios.

Just looking at the changes in tax rates it is clear that Project 2025 would place a greater burden on low-income families, making our tax system less fair. Raising the rate on the lowest two tax brackets from 10% and 12% to 15% raises taxes for everyone, but it disproportionately hurts families and individuals with income below $94,000. Meanwhile, setting the highest rate at 30% benefits households that currently pay marginal rates at 32% or above—that is those with income over $383,900.

There are other tax changes proposed by Project 2025 that would harm many low- and moderate-income households. The plan calls for capping tax-free employee benefits at $12,000 per family. That would raise taxes for families receiving a variety of employee benefits and especially health insurance benefits.

In 2022, 54.5% of the population had health insurance that was paid for in part by their employer. The percentage has historically been a little higher in Pennsylvania. According to the Kaiser Family Foundation Employer Health Benefits survey, in 2023 the average employer health plan for families cost $23,968 of which the employee paid $6,575 and the employer paid 17,303. If tax-free employee benefits were capped at $12,000, then the average employee would have to pay taxes on the difference between $17,303 and $12,000—that is, $5,393. At the 15% rate, that means an average additional tax burden of $809. Project 2025 says that capping tax-free employee benefits is justified to eliminate the tax preference for employees receiving benefits instead of wages. But it does not admit that any shift in compensation from tax-free benefits to wages will lead to higher taxes for working people.

Because not all families received employer-paid health insurance, this amount is not included in our estimates of the burden of the Project 2025 tax plan. But it would hurt roughly half of all Pennsylvania families and individuals.

Another change in individual taxes excluded from our calculations is a proposed reduction in the highest tax rate on capital gains from 20% to 15%. Of course, this change would overwhelmingly benefit families with the highest incomes.

Finally,  Project 2025 also calls for creating universal savings accounts, similar to Roth IRAs, that would allow all taxpayers to set aside up to $15,000 per year in income, which would accumulate tax-free. The plan would allow reduce taxes only for families that can afford to save some of what they earn. But low- and moderate-income families and individuals can afford to save very little of their income. Studies of household saving rates show that the bottom 90% of households by income typically save around 4% of their income. But people in the top 1% save about 38% of their income, while those in the 90th to 99th percentile save at roughly a 12% rate. So, a universal savings plan—like much lower marginal tax rates for high-income families—largely benefits the well off.

Corporate Taxes

When it comes to corporate taxes, the Project 2025 plan is also tilted heavily to wealthy corporations. And since the wealthiest 10% of Americans own 93% of corporate stock, they will be the main beneficiaries of the proposed reduction in the corporate tax rate from 21%—which is already far below the 35% it was before the Trump tax cuts of 2017—to 18%.

Project 2025 also calls for the United States to withdraw from the international agreement to create a minimum 15% tax on corporations. As the plan recognizes, this agreement was meant to stop countries from competing against one another to draw businesses—or at least shell companies that serve to hide corporate profits—to their shores. Most economists believe that this competition is a problem because this “race to the bottom” discourages countries from asking corporations to pay a reasonable share of taxes. Corporations benefit a great deal from government. They ship goods—and their workers arrive—on roads, bridges, and railroads and in planes that land at airports that are paid for with public dollars. Those workers secure the education and training they need to be productive at the public’s expense. They benefit from government research dollars that are responsible for new, productive processes and products, including the internet, which now plays such a critical role in business. Yet when corporations do not pay their share of the cost of those goods, then families—the same families that are already paying for the goods and services they purchase from those corporations—must pick up the slack. The result is that corporate profits increase, and that redounds to the benefit of the already rich people from the top 10% (and overwhelmingly from the top 1%) who are stockholders.

What for most economists is a bug of international competition is a feature in Project 2025. A race to the bottom is what they want, precisely because it will lead to greater rewards for corporations and those who own them.

Other Provisions

Finally, Project 2025 has two other important tax policy proposals.

The first is to roll back President Biden’s increase in funding for the IRS. Nothing shows the Project’s fundamental concern for the well-being of the wealthy than this action. New funding at the IRS has already collected more than $500 million in unpaid taxes from fewer than 2,000 delinquent millionaires. And at the same time, average taxpayers find that customer service at the IRS is much improved. A reduction of funding at the IRS would diminish its enforcement activity, which is almost always directed at millionaires and above—because that is where the money is.

The other general tax proposal is to enact by legislation, or possibly constitutional amendment, rules to prevent Congress from raising taxes without a three-fifths majority in both the House of Representatives and the Senate. Creating this barrier to higher taxes would make it more difficult to meet the ongoing and future needs of the country and its people. We can’t always say today what our needs will be in the future. But we should not hamstring the ability of the federal government to meet those needs. And there are two future issues that we recognize today and that will require new taxes: making up for shortfalls in the Social Security and Medicare trust funds. If Congress can’t raise new revenue to extend the life of those trust funds, we will see cuts to both Social Security and Medicare in the not-too-distant future.

Conclusion

In sum then, we can see why former President Trump wants to disavow Project 2025. When it comes to taxes, as well as many other issues—including the right to reproductive health care and the checks and balances between the president and Congress—Project 2025 is a threat to the well-being of average Pennsylvanians.

September 5, 2024

Press Release – National ITEP Study: Undocumented Immigrants Contribute $523,100,000 in PA Taxes Per Year

By Policy Briefs, Press Release

FOR IMMEDIATE RELEASE

July 29, 2024 

Contact: Kirstin Snow, snow@pennpolicy.org or Jon Whiten at ITEP, jon@itep.org or 917-655-3313 

National Study: Undocumented Immigrants Contribute $523,100,000 in PA Taxes Per Year  

Pennsylvania Policy Center Joins Institute on Taxation and Economic Policy on PA-Specific Release 

Immigration policies have taken center stage in public debates this year, but much of the conversation has been driven by emotion, not data. A new, in-depth national study from the Institute on Taxation and Economic Policy (ITEP) aims to help change that by quantifying how much undocumented immigrants pay in taxes, both nationally and in each state.  

Here in Pennsylvania, undocumented immigrants contributed $523,100,000 in state and local taxes in 2022 — a number that would have risen to $667,000,000 if these taxpayers had been granted work authorization, according to the study.  

Other key findings:  

  • Nationally, undocumented immigrants contributed $96.7 billion in federal, state, and local taxes in 2022. Of this, $37.3 billion went to state and local governments.  
  • For every one million undocumented immigrants who reside in the country, public services receive $8.9 billion in additional tax revenue. On the flip side, for every one million undocumented immigrants who are deported, public services stand to lose $8.9 billion in tax revenue.  
  • Nationally, providing access to work authorization to all current undocumented immigrants would increase their tax contributions by $40.2 billion per year to $136.9 billion.  
  • More than a third of the tax dollars paid by undocumented immigrants are toward payroll taxes dedicated to funding programs — like Social Security and Medicare — that these workers are barred from accessing.  
  • Similarly, income tax payments by undocumented immigrants are affected by laws that require them to pay more than otherwise similarly situated U.S. citizens; as one example, they are often barred from receiving meaningful tax credits like the Child Tax Credit or Earned Income Tax Credit. However, many states have made their versions of these credits more immigrant-inclusive in recent years.  
  • In PA and 39 other states, undocumented immigrants pay higher state and local tax rates than the top 1 percent of households living within their borders. 

“This study is the most comprehensive look at how much undocumented immigrants pay in taxes. And what it shows is that they pay quite a lot, to the tune of nearly $100 billion a year,” said Marco Guzman, ITEP senior policy analyst and co-author of the study. “The bottom line here is that regardless of immigration status, we all contribute by paying our taxes.”   

In Pennsylvania, $183,600,000 of the tax contributions are through sales and excise taxes, while $139,600,000 are through property taxes, and $185,300,000 are through personal or business income taxes.  

Marc Stier, executive director of the Pennsylvania Policy Center, said, “While this study is the most comprehensive analysis of taxes paid by undocumented immigrants, it is worth noting that it does not attempt to quantify broader impacts that flow from the increased economic activity created by these individuals. Taking those economic ripple effects into account would likely reveal undocumented immigrants to have an even larger significance to public revenues than is documented here.” 

Patty Torres, co-deputy director of Make the Road Pennsylvania commented on the study, “This study is another reminder that undocumented immigrants are contributing to our economies and our shared public services, and that immigration policy choices made in the years ahead will have significant consequences for public revenues.” Make the Road Pennsylvania is a partner organization with CASA and the Pennsylvanians Together campaign of the Pennsylvania Policy Center.  

“The value that immigrants offer to Pennsylvania is indispensable to the economy. According to ITEP, undocumented immigrants paid an average effective state and local tax of 8.9% toward funding infrastructure, services, and institutions in their home states like Pennsylvania, as measured relative to their incomes. This is juxtaposed by the most affluent taxpayers who pay just 7.2% in their home state,” said Daniel Alvalle, CASA’s Pennsylvania director. “More than that, immigrant families are part of our society, with everyone intertwined into one community: parents, teachers, children, custodians, healthcare workers, and so much more. Where we live is where we play and work. Our tax system should reflect the contributions that everyone makes, including immigrant workers.” 

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July 29, 2024
Photo of PA capitol building, shot from far above with a slight fish eye effect. Sunny and warm colors.

PPC Releases 2024–25 Pennsylvania State Budget Analysis – Part One

By Budget Analysis, Policy Briefs, Press Release, Press Statements

FOR IMMEDIATE RELEASE

July 26, 2024

CONTACT: Kirstin Snow, snow@pennpolicy.org

NEW ANALYSIS:  PENNSYLVANIA POLICY CENTER 2024-25 STATE BUDGET

Harrisburg, PA—Today the Pennsylvania Policy Center (PPC) released a new paper, “The Fiscal 2024–25 Pennsylvania Budget,” by executive director, Marc Stier. The analysis examines Governor Shapiro’s second budget and highlights funding successes as well as  failures.

In February, PPC called Governor Shapiro’s executive budget proposal A Pennsylvania Budget to Celebrate. After criticizing a 2023–24 budget that included the right priorities but inadequate funding for them, we wrote that the budget presented by Governor Shapiro today not only has the right priorities but provides the funding needed to meet them—at least in the next fiscal year. The investments the Governor proposes for public K–12 education, higher education, economic development, housing, and other priorities are substantial and bold. And as important as the proposed new funding is, the Governor’s budget also recognizes the need for Pennsylvania to do some things differently in all these areas.

The budget enacted by the General Assembly has many of the good features that Governor Shapiro proposed and also the funding to match them. There are some major new initiatives—but there are also some major missed opportunities. In many respects, it falls short of Governor Shapiro’s proposals and in some cases falls far short of them.

Stier commented, “This is disappointing. And Pennsylvanians should know why. While most of the Governor’s proposals received strong, and sometimes bipartisan, support in the Democrat-controlled House of Representatives, they were rejected in the Republican-controlled Senate—and that is despite the best efforts of the Senate Democratic leadership to move them forward.”

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July 26, 2024

Penn Policy Statement on President Biden’s Withdrawal

By Blog Post, Policy Briefs, Press Statement

Joe Biden’s truly selfless act today exemplifies the authentic leadership that has made him the most effective Democratic President since Franklin Roosevelt.

Under very difficult political circumstances, with a bare majority in Congress and in an extremely divided country, his legislative record was extraordinary.

In just four years, President Biden led the way in the enactment of

  • an economic recovery program that brought us back from the pandemic recession and led to the fastest economic growth and lowest unemployment rate in the world, as well as a relatively quick return to slow price growth.
  • the boldest program to address climate change in the world.
  • the largest plan to rebuild our public infrastructure since the New Deal.
  • an effort to support a high-technology economy that is built on well-trained union workers.
  • a health insurance plan that has reduced costs for hundreds of thousands of Pennsylvanians and millions of Americans.
  • an expansion of tax credits that cut child poverty in half which, sadly, Republicans refused to renew after two years.

At the same time, President Biden has been a bold supporter of labor organizing and he pointed towards a revision of our tax system that asks the ultra-rich and corporations to pay their fair share.

We do not endorse candidates or political parties. But we hope we can all recognize the extraordinary achievements of President Biden.

 

July 21, 2024

Response to the 2024–25 PA State Budget — Education Funding

By Blog Post, Policy Briefs, Press Statements

July 11, 2024

Governor Shapiro and the members of the General Assembly have had about 18 months to respond to the Commonwealth Court ruling that Pennsylvania’s system of funding K-12 education is unconstitutional. And Pennsylvania politicians have had decades to recognize that far too many low-income and Black and brown schoolchildren have not received an adequate education, which has limited their opportunities and denied the Commonwealth the full flowering of their talents and abilities.

The K–12 budget that we expect to be enacted soon recognizes the problem. But it does not put the state on a path to solving it.

It recognizes the problem in two ways.

First, for the first time in our history, the school code embraces a formula that quantifies the problem. The school code says that school districts need $4.5 billion in new funding to adequately and equitably fund our schools. Because of an unfortunate change in how poverty is counted, this amount is somewhat less than the $5.1 billion we believe is truly needed by our school children. But it remains a substantial number.

Second, again for the first time in our history, the General Appropriation bill directs the majority of new K–12 funding to the school districts that are least well-funded. This includes $493 million in the Ready to Learn line item and $60 million in the Basic Education Funding line item that is directed to 11 school districts that are especially underfunded.

These two new initiatives are major achievements.

However, this new spending meets only a bit more than 10% of the total needed to give every child the opportunity he or she needs. And, unlike the House-passed bill HB 2370, the new school code does not set a timeline for filling 100% of the adequacy gap.

We have been calling on the General Assembly to finish the job on school funding. The budget legislation they will soon pass takes up the job. But it is very far away from finishing it.

It is important for the people of Pennsylvania to understand why we have come so far but still have so far to go.

We have come so far because our political leaders understand that more than 70% of Pennsylvanians recognize the need for substantial new funding of our schools. And in the last four months, tens of thousands of them have contacted their state senators, representatives, and Governor Shapiro to let them know that they stand with our children and the future of our commonwealth.

We have come so far because House Speaker Joanna McClinton and Majority Leader Matt Bradford and the other leaders and members of the House and Senate Democratic caucuses have been champions for our kids.

Why does this budget not put the state on a path to meeting its constitutional and moral responsibility to fund our schools? Even though they did not appeal the Commonwealth Court decision, Senate and House Republicans have never put forward a plan to meet their obligation under it. They rejected the Basic Education Funding Commission’s plan. And they have sought to whittle away at Democratic legislative proposals and reject a complete plan to fund our schools adequately and equitably.

We are glad that Republican leaders have agreed to the achievements we noted above but they have refused to go further and accept the long-term plan our kids and the Constitution of Pennsylvania require.

So, while we believe Pennsylvanians should appreciate the important steps forward in the budget this year, we note with sadness that unless Governor Shapiro and the General Assembly enact a plan to fully and fairly fund our schools, another generation of our school children will be denied their constitutional and moral right to an adequate and equitable K–12 education. And not just our kids, but all Pennsylvanians, will suffer as a result

Click HERE to learn how much your school district will receive.

 

July 11, 2024

Op-Ed: A State Earned Income Tax Credit Should Be Part of a Budget Deal in 2024

By Policy Briefs, Press Statements

A State Earned Income Tax Credit Should Be Part of a Budget Deal in 2024

by Marc Stier, Executive Director, Pennsylvania Policy Center

The Pennsylvania state budget for fiscal year 2024–25 is now officially overdue, so we’re still left wondering: What might a deal look like?

There are two critical components that need to be addressed.

The first is enactment of year one of the Basic Education Funding Commission’s plan to adequately and equitably fund education.

Enacting this plan is a moral and constitutional requirement. Failing to meet it would leave the General Assembly to answer to both the voters and the courts. Public opinion polls show overwhelming support for meeting this goal. And while courts are generally reluctant to tell legislators how exactly to spend money, for three reasons this barrier is lower in Pennsylvania right now than in other times and places.

  • Neither Democrats nor Republicans sought to appeal Judge Jubelirer’s ruling that our current system of K-12 school funding is unconstitutional.
  • The Basic Education Funding Commission has put forward a plan that is tailor-made to meet Judge Jubelirer’s concerns.
  • And with a surplus of $14 billion in the bank, a Pennsylvania court can order implementation of that plan without taking the even bolder step of requiring new taxes to fund it.

The second component is the implementation of a state earned income tax credit.

I make the second point with some reluctance. I am concerned—as the Governor and state legislators should be—about using up the state surplus with a tax cut. That surplus is needed to pay ongoing operating expenses and the entire education plan.

Until recently, Senate Republicans seemed to agree. But Republican senators recently enacted, with some Democratic support, a tax cut that would cost the state $2.7 billion in fiscal year 2025–26.

In doing so, Republicans acknowledged that it is entirely legitimate to use the surplus to fund ongoing expenses. A tax cut is as much an ongoing expense as funding for K-12 education.

If we start with the Republican proposal to use $2.7 billion of the surplus in fiscal year 2025–26 for ongoing expenses, the question is how to divide it between the K-12 funding and a tax cut.

The Republican plan to cut taxes by reducing the personal income tax by half a point and eliminating the gross receipts tax is not acceptable for two reasons.

One: it is far too large. The state is going to need $2 billion in fiscal year 2025–26 to fund the second year of the K-12 education plan.

And, two: the plan is heavily weighted to the rich and the corporations that generate electricity. A half-point reduction of the PIT would reduce taxes for the top 1% of taxpayers by $5,435 per year. It would reduce taxes for the middle 20% of families by only $181 per year. 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.

In a state and local tax system that already takes 11.8% of the income of the bottom 99% and only 6% of the income of the top 1%, a tax cut weighted so heavily to the richest Pennsylvanians and corporations is unacceptable.

What would be acceptable, however, is a state earned income tax credit (EITC) set at 30% of the value of the federal EITC already received by Pennsylvanians.

Why might Republicans accept this?

Well, for one thing, it’s a Republican plan that was initially proposed by Richard Nixon and expanded with bipartisan support many times.

It is a program that has been proven to encourage work.

It reduces poverty more than any other federal program except Social Security.

It is simple to administer, requiring no new bureaucracy but only an additional line on the PA-40 tax form.

By encouraging more Pennsylvanians to file for the federal EITC, it could bring as much as $40 million in federal funds to Pennsylvania at no cost at all.

It helps working people, not with government spending but with a tax credit and would benefit 1.45 million families. The average tax cut for those who receive it would be $773. More than 88% of the benefits would go to Pennsylvania families earning less than $52,100 (and those above that level who get a tax credit have three or more children.) By a small margin, these families disproportionately live in Republican House and Senate districts.

And it would only cost the state $770 million—far less than the tax cut passed by the Senate.

If a tax cut is a necessary part of reaching a budget deal by June 30th, a state earned income tax credit should be part of it.

July 9, 2024

Statement: PPC Opposes Senate School Voucher Bill 1280

By Blog Post, Press Statements

The Pennsylvania Policy Center stands in opposition to Senate Bill 1280, which would force Pennsylvania taxpayers to give billions in handouts to private and religious institutions with virtually no accountability.

After failing to enact a state budget for FY 2024–25 by the deadline of July 1, Pennsylvania Senate Republicans sent a clear message today that they continue to prioritize giving handouts to the wealthy and diverting public funds to private and religious schools over fully and fairly funding our public schools.

On Wednesday, July 3, the Senate Finance Committee is scheduled to consider SB 1280, a new voucher tax credit bill that would cost taxpayers initially about $2.3 billion next year and more in future years.

We oppose SB 1280 because

  • it diverts $2.3 billion in desperately needed funding for our public schools to an ill-conceived voucher program that most Pennsylvanians oppose.
  • it is too small to help low- and moderate-income students attend a private school and would disproportionately benefit relatively well-off families who already have children enrolled in private academies. (Nationally, twice as many parents with incomes over $75,000 send their kids to private school than parents with incomes below $75,000.)
  • it provides absolutely no accountability for the funds spent, giving taxpayers no assurance that the schools receiving these funds provide an adequate education.
  • it allows private schools receiving these funds to continue to discriminate on the basis of race, gender, and sexual orientation, religious and political beliefs of parents, and whether a student is pregnant or has a child, as many private schools in the state already do.
  • it is unfair to Pennsylvanians based on where they reside, as the benefits of this program would largely go to parents and students in areas of the state where there are many private schools, leaving rural families with few options to utilize the vouchers.

Senate Bill 1280 would cost $2.3 billion. It comes just weeks after the PA Senate passed a tax cut with a $2.7 billion price tag for fiscal year 2024–25 that mainly benefits the wealthiest Pennsylvanians.

If SB 1280 is passed, Senate Republicans will have demonstrated that the state has sufficient funds to meet our moral and constitutional responsibility to adequately and equitably fund our schools.

And yet, the Senate still has no plan do that.

Neither the voters nor the courts of Pennsylvania will approve of this failure in priorities.

July 3, 2024

Statement: What We Are Looking for in a Budget Agreement

By Blog Post, PA Budget, Press Statement

The Pennsylvania state budget is now officially late. By all reports, however, House and Senate negotiators, as well as the governor’s office, are working diligently to reach an agreement. We are not concerned by a brief delay as we know that the issues under consideration are complex and that necessary compromises are difficult in a divided government.

We do want to set out some criteria by which we will evaluate a successful compromise.

  1. Enactment of a plan to meet our constitutional and moral responsibility to fully and fairly fund our schools, along the lines proposed by the Basic Education Funding Commission and with first-year funding at the level proposed by Governor Shapiro.
  2. A limited tax cut directed toward the Pennsylvanians who most suffer from our upside-down tax system, ideally by instituting a state piggyback on the federal earned income tax cut.
  3. Enactment and funding of the Grow PA program which would provide scholarships of $5,000 to Pennsylvanians attending a wide range of public and private colleges in fields where there is demonstrated need for more trained workers.
  4. A short path to a minimum wage of $15 per hour with a cost-of-living increase.
  5. New funding for violence-reduction strategies that have been working in Philadelphia and around the state.
  6. Operating subsidies for public transit.

A substantial new investment in the Whole-Home Repairs program.

We have not commented on the Grow PA program before, which was first proposed by Senator Scott Martin and received unanimous support by the full Senate and the House Education Committee. This proposal has many similarities to a plan called The Pennsylvania Promise, which our previous organization developed in 2018 and Senator Vincent Hughes and Representative Jordan Harris introduced at that time. It also has similarities to Governor Wolf’s Nellie Bly scholarship program. We are gratified that Senator Martin has embraced this set of ideas and has championed them along with other Republican and Democratic senators and House members. While the current plan is not as extensive as some of the earlier proposals, it is a good step in the right direction. And it shows that if Democrats and Republicans focus on the critical needs of the state, they can overcome partisan division and enact proposals that will benefit not just the recipients of these scholarships but, by contributing to economic development in the state, all of us. We hope it is a model for a budget that encompasses the five proposals listed above.

 

 

 

July 1, 2024

ED. BD. MEMO: A State Earned Income Tax Credit Should Be Part of a Budget Deal in 2024

By Editorial Board Memo

To: Members of the General Assembly, editorial board members, and political reporters

From: Marc Stier, Executive Director, Pennsylvania Policy Center

Subject: What we are looking for in a budget agreement

Date: July 1, 2024

The Pennsylvania state budget is now officially late. By all reports, however, House and Senate negotiators, as well as the governor’s office, are working diligently to reach an agreement. We are not concerned by a brief delay as we know that the issues under consideration are complex and that necessary compromises are difficult in a divided government.

We do want to set out some criteria by which we will evaluate a successful compromise.

  1. Enactment of a plan to meet our constitutional and moral responsibility to fully and fairly fund our schools, along the lines proposed by the Basic Education Funding Commission and with first-year funding at the level proposed by Governor Shapiro.
  1. A limited tax cut directed toward the Pennsylvanians who most suffer from our upside-down tax system, ideally by instituting a state piggyback on the federal earned income tax cut.
  1. Enactment and funding of the Grow PA program which would provide scholarships of $5,000 to Pennsylvanians attending a wide range of public and private colleges in fields where there is demonstrated need for more trained workers.
  1. A short path to a minimum wage of $15 per hour with a cost-of-living increase.
  1. A substantial new investment in the Whole-Home Repairs program.

We have not commented on the Grow PA program before, which was first proposed by Senator Scott Martin and received unanimous support by the full Senate and the House Education Committee. This proposal has many similarities to a plan called The Pennsylvania Promise, which our previous organization developed in 2018 and Senator Vincent Hughes and Representative Jordan Harris introduced at that time. It also has similarities to Governor Wolf’s Nellie Bly scholarship program. We are gratified that Senator Martin has embraced this set of ideas and has championed them along with other Republican and Democratic senators and House members. While the current plan is not as extensive as some of the earlier proposals, it is a good step in the right direction. And it shows that if Democrats and Republicans focus on the critical needs of the state, they can overcome partisan division and enact proposals that will benefit not just the recipients of these scholarships but, by contributing to economic development in the state, all of us. We hope it is a model for a budget that encompasses the five proposals listed above.

 

 

 

June 27, 2024

NEW REPORT: ‘School Funding in PA Remains Inadequate and Inequitable’ 

By Press Release

June 27, 2024

 

CONTACT: Kirstin Snow, snow@pennpolicy.org  

 

FOR IMMEDIATE RELEASE  

 

NEW REPORT: School Funding in PA Remains Inadequate and Inequitable 

 

Harrisburg, PA—Today the Pennsylvania Policy Center released a new paper, “School Funding in PA Remains Inadequate and Inequitable,” by executive director Marc Stier. The paper highlights the need for proper education spending allowances in the 2024–25 state budget as mandated in the Commonwealth Court ruling on the matter.  

 

“As the budget deadline looms, this report brings into clearer focus the incredible injustice of Pennsylvania’s school funding,” Stier said. He added, “The most recent data on the distribution of funding among our school districts reaffirms the central conclusion of the school funding lawsuit, as well as decades of analysis: A pattern of funding in which school districts with a high share of students living in poverty or who are Black or Hispanic are the worst off is a clear affront to our state’s constitution and to the promise of equality of opportunity that has long been the touchstone of our state and country. It is also offensive to human decency and morality. The time to fix this problem is now.” 

 

BACKGROUND: Year after year, Pennsylvania Policy Center, our predecessor organization (PBPC) and many others have released research showing both that the vast majority of Pennsylvania K-12 school districts are underfunded and that school districts with a high share of students who come from impoverished families or are Black or Hispanic are disproportionately among them. 

 

That analysis was accepted by Pennsylvania Commonwealth Court judge Renée Cohn Jubelirer who ruled that Pennsylvania’s system of K-12 school funding is unconstitutional. 

 

And yet, with less than a week to go before the fiscal year 2024–25 budget is due, there are still members of the General Assembly who refuse to accept these basic facts. 

 

So here we put forward our most recent update of the data we have provided in the past: estimates of the per-student funding gap in Pennsylvania’s five hundred K-12 school districts divided based on the share of students who live in poverty or who are Black or Hispanic.  Read the report here.  

 

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June 27, 2024

K–12 School Funding in PA Remains Inadequate and Inequitable

By Blog Post, Policy Briefs

Year after year, our predecessor organization and many others have released research showing both that the vast majority of Pennsylvania K–12 school districts are underfunded and that school districts with a high share of students who come from impoverished families or are Black or Hispanic are disproportionately among them.

That analysis was accepted by Pennsylvania Commonwealth Court judge Renée Cohn Jubelirer, who ruled that Pennsylvania’s system of K–12 school funding is unconstitutional.

And yet, with less than a week to go before the fiscal year 2024–25 budget is due, there are still members of the General Assembly who refuse to accept these basic facts.

So here we put forward our most recent update of the data we have provided in the past: estimates of the per-student funding gap in Pennsylvania’s five hundred K–12 school districts divided based on the share of students who live in poverty or who are Black or Hispanic.

Click here to read full screen or print.

Adequacy And Equity 2024

June 26, 2024
Picture of the PA State Capitol building

From Work to Wealth and Back Again

By Blog Post, Policy Briefs

From Work to Wealth and Back Again

Americans suffer because we reward wealth more than work.

 Here’s how we got here and how we can create an economy

that works for all of us.

Introduction

The pursuit of tax justice is now central to the work of both the Pennsylvania Policy Center and our advocacy arm Pennsylvanians Together. It is also the theme of our People’s Budget Summit this year.

In developing this campaign, we needed to pull together a lot of research about  the history and politics of economic and tax policy over the last forty years.  Our executive director has been working on a long paper that surveys this broad topic, which should be read for release by the end of the summer.

He was far enough along, however, to give a 15-minute talk previewing the main themes of the paper at our People’s Budget Summit in early June. This is a revised version of the talk. It’s a little dense, but in just seven pages it gives a overview of how and why the rewards for wealth have jumped in the U.S. and rewards for work have shrunk in our economy over the last 40 years, as well as what we can do to reverse direction.

This is, of course, a huge topic. The paper borrows ideas from others with a few twists of ours own, especially in the political analysis of why the shift from work to wealth took place and what we can do to reverse it.

We would love to hear your thoughts on this early version of our project.

Click here to read the report full screen, download or print.

 

June 25, 2024

Testimony to the Philadelphia Tax Reform Commission

By Blog Post, Policy Statement

Our executive director, Marc Stier, presented this testimony at the first public hearing of the Philadelphia Tax Reform Commission on June 17, 2021. Stier is also the senior advisor to the advisory committee to the Commission.

This testimony sets out a range of questions that we believe the Tax Reform Commission should answer in its work.

Click here to read full screen, print or download.

[pdf-embedder url=”https://pennpolicy.org/wp-content/uploads/2024/06/Tax-Commission-Testimony.pdf” title=”Tax Commission Testimony”]
June 21, 2024

Press Release: New Penn Policy Center Report on Ballot Drop Boxes

By Press Statements

PENNSYLVANIA POLICY CENTER DROP BOX PAPER RELEASE

FOR IMMEDIATE RELEASE

CONTACT: Kirstin Snow, snow@pennpolicy.org

PRESS RELEASE

NEW REPORT: The Case for More Voting Drop Boxes

Harrisburg, PA—Today the Pennsylvania Policy Center released a new paper, ‘Ballot Drop Boxes Make Voting Better’, by senior advisor Susan Gobreski.

Effective voter reforms are ones that make it easier for every eligible voter to securely cast their ballot. Ballot drop boxes have proven to be an effective, secure, and desired method for collecting ballots, increasing voter convenience, and ensuring the integrity of the electoral process. Furthermore, Pennsylvanians are “voting with their feet” — across Pennsylvania, voters are using drop boxes, demonstrating that they are a positive contribution to the voting environment.

“Expanding the use of drop boxes for voting in Pennsylvania is a no-brainer,” said author Gobreski. She added, “Drop boxes increase turnout, decrease barriers to those who may need accommodations, and provide flexibility for those on tight schedules. There are zero downsides to increasing the use of drop boxes.”

Based on the review of the evidence on ballot drop boxes, Pennsylvania Policy Center makes the following recommendations:

  • Pennsylvania should continue to improve the voting process and experience for voters by expanding the use of ballot drop boxes with funding for counties and through policy — this means more options that allow people to vote securely at a time and place that are convenient.
  • Pennsylvania should adopt legislation to set a baseline minimum standard for the use of drop boxes and encourage expansion to bring more options to more communities throughout the Commonwealth.

The widespread adoption of ballot drop boxes is a practical and effective strategy for improving access to voting, increasing voter turnout, and ensuring the integrity of the electoral process. By following best practices in implementing these drop box programs, policymakers can create a more inclusive and robust electoral system that empowers citizens to exercise their democratic rights while saving taxpayer dollars and building public trust in elections.

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June 20, 2024

Create a State Earned Income Tax Credit in 2024!

By Blog Post

In our first post in this series, we argued that if the Pennsylvania General Assembly chooses to cut taxes in the budget that begins on July 1st, it should limit the cut to less than $1 billion per year and focus the benefits of the cut on low- and moderate-income Pennsylvanians.

There is one plan that meets both of these criteria perfectly: a state earned income tax credit.

The federal earned income tax credit (EITC) is a program that puts more money into the pockets of low- and middle-income families by giving them a credit against the taxes they pay. It was a program created by the Nixon administration and expanded under subsequent Republican presidents. It has traditionally been supported by Republicans who believe, correctly, that it encourages and makes it possible for people with low incomes to enter and stay in the job market.

No federal program, other than Social Security, reduces poverty as much. Twenty-nine other states have expanded the benefits of a federal EITC by enacting a state EITC. Pennsylvania should follow their lead. A state EITC is a relatively inexpensive program. And it is a program that would be easy to implement.

The federal earned income tax credit gives workers a credit against their taxes. And the credit is refundable, which means that even if they pay no taxes they can still receive the benefit. The tax credit begins when workers earn their first dollar and increases to a maximum income of about $12,000 for a one-worker family with one child and about $17,000 for a married couple with three children. Then it gradually declines when families hit a higher threshold, so there is no benefit cliff.

The state tax credit is simple to claim and administer. We propose that Pennsylvania’s earned income tax credit be set at 30% of the federal credit. Claiming it would require taxpayers to simply enter their federal tax credit on one line on the PA-40 tax form, which would be done automatically by tax software.

The program would benefit 1.45 million families in the state. The average tax cut for those who receive it would be $773. Almost all of EITC benefits—88.5%—would go to Pennsylvania families earning less than $52,100 (and those above that level who received any benefit typically have three or more children). The average income of those who receive EITC benefits is $27,500.  Roughly 40% of the families who would benefit from a state EITC do not currently benefit from the state’s tax forgiveness program.

While it would be a good idea to increase the benefits and lift the income limits on the state’s Tax Forgiveness program, the state EITC would provide greater benefits to families with lower incomes because it is refundable.

We estimate that a Pennsylvania earned income tax credit would cost the state $775 million.

An additional benefit of the state earned income tax credit is that it would encourage more families who are eligible for the federal EITC to claim it—right now, about 15% of those who are eligible fail to do so. An added incentive to claim the federal credit could bring about $43 million federal dollars into the state that are now left on the table.

June 14, 2024
a bar chart showing what different income levels pay in state and local taxes

Should We Cut Taxes in 2024–25, and If So—How?

By Blog Post

In response to a Senate vote in favor of a small reduction in the personal income tax rate and the gross receipts tax on electricity, we pointed out that this is not the right time to be reducing taxes in Pennsylvania.

At the moment, the state has a substantial budget surplus of more than $13 billion—but we need that surplus for two purposes. First, we are currently using it to pay the state’s operating expenses and will continue to do so because annual expenditures exceed annual revenues by more than $3 billion.

Second, the state has serious needs that require additional investment. To start with, we will eventually need an additional $6–$7 billion per year to meet the constitutional and moral responsibility to adequately and equitably fund K–12 education. And then there are critical needs in both pre-K and higher education and workforce training, transportation infrastructure (including public transit), and environmental protection.

So, we believe that the best fiscal policy right now is to add modest new tax revenues as we gradually run down the accumulated $14 billion surplus. Adding sources of revenue now will extend the life of the surplus, putting off the day when even more tax revenue is needed. And, with continued economic growth, it is possible that higher revenues generated by existing and new taxes would enable us to avoid a moment of crisis when we would have to choose between large substantial budget cuts or substantial new revenues.

However, neither party appears ready to start dealing with the coming fiscal crisis this year. And Senate Republicans might insist on some tax reduction in exchange for supporting the critical education funding we must pass this year.

If we do cut taxes, should we adopt the Senate Republican plan?

We do not think the Senate Republican plan is a good idea for two reasons.

First, we believe that any tax cut should provide far more relief for low- and moderate-income Pennsylvanians than wealthier Pennsylvanians. As we have shown before, Pennsylvania’s state and local taxes are upside-down, with the fourth most regressive tax system of any state. The top 1% of Pennsylvania households, with an averagea income of $1.9 million, pay 6% of their income in state and local taxes, while families in the middle of the income distribution, with incomes between $47,800 and $81,899, pay 11.4% of their income. Meanwhile, families in the bottom 20% of the income distribution, with incomes below $22,100, pay 15.1% of their income in state and local taxes, the highest rate for that group in any state in the country.

Figure 1

Source: Carl Davis, et. al., Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, 7th Edition, Institute on Tax and Economic Policy, January 2024, https://sfo2.digitaloceanspaces.com/itep/ITEP-Who-Pays-7th-edition.pdf.

Because of our flat tax, a half-point reduction of the PIT would reduce taxes for the top 1% of taxpayers by $5,435 per year. It would reduce taxes for the middle 20% of families by only $181 per year. 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.

Second, for the reasons mentioned above, tax reduction should be limited.

The Republican tax plan to cut the personal income tax rate by half a point and eliminate the Gross Receipts Tax on electricity reduces state revenues by $2.711 in fiscal year 2025–26. We believe this should be upper limit for any combination of new spending and tax reductions in that year. And, since carrying out the seven-year education funding plan would itself cost $2 billion per year by the second year of the plan (2025–26), any tax reduction should be limited to about $700 million per year.

Some Republicans have suggested that cutting taxes does not harm the long-term fiscal prospects of the state. This is untrue. The impact of a recurring reduction in taxes on the state’s fiscal condition is no different than a recurring increase in spending. A reduction in revenues and an increase in expenditures of the same magnitude reduce a budget surplus or increase a budget deficit to the same extent.

Comparing the Impact of Tax Cuts and New Spending (a little wonky!)

It is true that a tax cut can have a positive, short-term impact on economic growth because households would have more money to spend and thus would consume more. But an increase in education spending of the same magnitude would also lead directly to greater consumption. And since some portion of a tax cut for wealthy families is saved not spent, additional state spending will lead to more consumption than a tax cut for the wealthy of the same magnitude.

There is also some long-term benefit from cutting personal income taxes as it may lead some people or businesses to move into the state. But the effect of a small change in income tax rates is likely to be minimal. A large body of evidence suggests that small differences in tax rates have little impact on where individuals or businesses locate, especially when we are considering moves across state lines. And spending more on K-12 education has been shown to increase long-term economic growth in two ways. Higher K-12 spending leads to better educational outcomes which in turn leads to higher wages. And better educated workers attract business development.

Given the current state of economic research, we think that the long-term benefits of increased spending on education are likely to be greater than that of a small reduction in the personal income tax rate. But the evidence at this point is certainly not conclusive.

One thing is fairly clear, however: the direct, long-term economic benefits of increased spending on education are likely to benefit current Pennsylvania children, whose long-term prospects are raised by securing a better education. And improvements in K–12 education might also lead businesses attracted by our better educated workforce to move into the state and they might bring newcomers as well. If reducing taxes leads to people and businesses moving into the state new Pennsylvanians, not current residents would receive the direct, long-term benefits. And people moving into the state to take new jobs are likely to be better off economically than low-income Pennsylvania kids who suffer from inadequately funded schools. (Of course, the indirect multiplier effects of both tax cuts and educational improvements would benefit existing and new Pennsylvanians.)

So, from the point of view of economic justice, there is no question that meeting our constitutional responsibility to adequately and equitably fund our education system is more desirable than a tax cut that does not fix our regressive tax system.

And similarly, a tax cut that disproportionately benefits low-income Pennsylvanians would be better than one that benefits high-income Pennsylvanians.

Our next two blog posts consider tax proposals that provide greater benefits to low-income Pennsylvanians. The first examines a state earned income tax cut. The second looks at two other ideas: an extension of the property tax and rent rebate program to those under the age of 65.

June 14, 2024

Statement on House Passage of HB 2370

By Blog Post, Press Statements

For Immediate Release

Contact: Erica Freeman, Deputy Director of Communications, Pennsylvania Policy Center (267) 496-5253

Marc Stier, executive director of the Pennsylvania Policy Center, released the following statement on the passage of HB 2370:

“The children of Pennsylvania, and especially those who live in poor, Black, and brown communities, have waited decades for the Pennsylvania General Assembly to meet its moral and constitutional responsibility to fully and fairly fund K-12 education.

With the passage of HB 2370 with bipartisan support today, the Pennsylvania House passed a seven-year plan to attain that goal. We call on the Senate to follow the lead of the House and pass this bill as well and send it to Governor Shapiro for his approval.”

June 11, 2024

Pennsylvania Policy Center and Pennsylvanians Together Budget Summit Release

By Press Release

FOR IMMEDIATE RELEASE

CONTACT: Kirstin Snow, snow@pennpolicy.org

PRESS RELEASE

 

Pennsylvanians Together, Partners Hold Rally to Demand Tax Justice in PA NOW!

12-Foot Inflatable Corporate Fat Cat, ‘Mr. Riggs’ Made Appearance in Capitol

Harrisburg, PA—Today in the Capitol Rotunda, Pennsylvania Policy Center’s Pennsylvanians Together campaign and partners, including SEIU, CASA, Action Together NEPA, Make the Road, and others from across the Commonwealth joined together for a rally to call upon lawmakers to right the state’s upside-down tax system and demand tax justice NOW!

Pennsylvania has THE MOST unfair tax structure in the country. And now—budget season—is the time to demand a fair share tax plan to pay for the things working families need to not just survive but thrive—things like a fully and equitably funded education for our kids, affordable housing, and a livable minimum wage.

Mr. Riggs, the 12-foot inflatable corporate fat cat, was in attendance, joined by partners and scores of activists from across the state, along with speakers:

  • Marc Stier, Executive Director, Pennsylvania Policy Center
  • Dwayne Heisler, Campaigns Director, Pennsylvanians Together
  • Jody Weinrich, SEIU / PA Joint Board
  • Senator Art Haywood (D)
  • Angelo Ortega, Make the Road PA
  • Hillary Rothrock, SEIU HCPA, United Home Care Workers
  • Daniel Alvalle, CASA
  • Jessica Britain, Action Together, NEPA

QUOTES

Marc Stier: “Pennsylvanians Together is here at the state Capitol today to call for economic justice now and in the future. In the short term, we call for using the $14 billion state surplus to fund the first few years of the seven-year plan to fund k-12 education fully and fairly. In the long term, we call for ensuring that wealthy individuals and multinational corporations pay their fair share of taxes. That would give us the revenue we need to fund the whole K-12 plan as well as make the investments in workforce training and higher education we need to create opportunity and prosperity for all.”

Senator Haywood: “Our tax system is rigged against us. Reducing taxation on everyday people and making the rich pay their fair share is the first step toward fairness.”

Dwayne Heisler: “The Pennsylvanians Together campaign works to ensure that all Pennsylvanians can thrive—not just survive. For too long, we’ve let politicians, who serve the interests of corporations, and the rich divide us based on what we look like, where we come from, where we worship, how much money we have or whether we are native-born or immigrants. By dividing us, they have given us public policies that do too little to help most Pennsylvanians while making the rich and corporations even wealthier. That’s why we demand tax justice now!”

Angelo Ortega: “Whether the problem is storm damage or neglect by previous owners many families in Pennsylvania live in houses that could be wonderful places to live if only they had some care. They might need a major improvement or minor ones. But the costs for these repairs are often beyond the means of the families that own these homes.”

“Fortunately, the Whole-Home Repairs program provides the funds. And when the repairs are made, it benefits not just the family that lives in the home but their neighbors and the local community. But the initial money for the program has run out in most counties in Pennsylvania, so now is the time to add new funding. More money for the Whole-Home Repairs program means we can help more families who need it.”

Hillary Rothrock: “Every month is a struggle to pay my rent, my bills, put food on the table, and pay for medical care. I have medical bills that I make payments on to afford them…” “I have no benefits, no health insurance, no paid sick or vacation time, no 401K or pension. I don’t even get overtime pay or holiday pay.”

“I’m proud to pay my fair share in taxes. But it isn’t fair that my rate is more than double the rate paid by the top 1% of families whose incomes average $1.9 million a year!”

Jody Weinrich: “I believe people … shouldn’t have to live with relatives because they can’t afford housing on minimum wage. And how can anyone think about retirement when they’re making so little?”

“I believe people should be able to take their kids to the park, out to a restaurant, or to see a movie without worrying about money. We deserve a livable wage so we can have dignity in our work. Pennsylvania should be a place where working people can thrive, not just survive.”

Jessica Britain: “I’m here to say that I’m not interested in what we can’t do…what we can do is make a historic, constitutionally and Commonwealth Court-mandated investment in ALL public schools around the Commonwealth.”

“Every student deserves…a safe, healthy learning environment so they can thrive and succeed in school today and live productive, fulfilling lives after graduation.”

 

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June 3, 2024