Press Statements

Yesterday, Senate Majority Leader Joe Pittman (R-41) introduced legislation to cut Pennsylvania’s personal income tax rate from the current 3.07% to 2.8%.

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 Governor 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 $450 million per year by fiscal year 2028. And because the PIT is a flat tax, most of the benefit of the 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.

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.

Moreover, if we compare the decline in share of tax revenues that comes from corporate taxes to the decline in the state share of funding for schools—the primary source of the deep and persistent inequity in school funding—you can see that these data series track one another almost perfectly.

The Republican insistence—sometimes with Democratic connivance—on cutting corporate and other taxes is the prime cause of the current education funding crisis.

Pittman’s bill is just one more instance of these same distorted priorities. And, they are especially problematic because there is no evidence that tax cuts for the rich have in the past, or would in the future, spur our economy or create more jobs at any reasonable cost. There is also a great deal of evidence that fairly funding our schools would lead to greater educational achievement for Pennsylvanians and both economic growth and job creation.

If the General Assembly wants to cut taxes now, there is a far better way to do so than a reduction in our flat tax. The state could adopt a variant of the Fair Share Tax plan the Pennsylvania Policy Center has been putting forward over the last five years. That plan would cut the tax rate on two classes of income wages and interest while raising the tax rate on what we call income from wealth: dividends, capital gains, business profits, royalties, estates, and gambling winnings. Since most income from wealth is earned by those at the top of the income distribution, 54% of any increase in revenues would come from the top 1% and another 24% from the next 4%. More than 60% of families would get a tax cut, and another 22% would see no change in their taxes. Only about 17% of families would pay more.

If the members of the General Assembly just want to provide some tax relief for working people, they could cut the tax rate on income from work to 2.5% and increase the tax rate on income from wealth to about 4.25%, leaving overall revenues unchanged.

Or, if our representatives and senators want to begin to repair our tax system while raising more revenue for education they could set the tax rate on income from wealth at 6.5%, which would raise about $2 billion in new revenues for the state.

Either of these proposals would be a reasonable way to improve our tax system without reducing revenues we need to fully and fairly fund education or increase those revenues by adopting the second plan.

These are the proposals that state legislators would be putting forward if they were ready to fix the immoral and unconstitutional education funding system in Pennsylvania.

STATEMENT on Child Tax Credit Expansion – Marc Stier, Executive Director, Pennsylvania Policy Center

The House Ways and Means Committee today voted in favor of bipartisan tax legislation that includes an expansion of the child tax credit along with the restoration of some expired business tax credits. The legislation is the product of negotiations between the chair of the House Ways and Means Committee, Jason Smith (R-MO) and the chair of the Senate Finance Committee, Ron Wyden (D-OR).

This legislation would benefit 19 million children in low-income families, or 1 in 5 of children under 17, including 506,000 children in Pennsylvania. It would especially help Black, Latino, and Asian children, whose parents are overrepresented in low-paying jobs due to structural barriers to opportunity.

In the first year, the expansion of the child tax credit would lift 400,000 children nationwide—and roughly 16,000 kids in Pennsylvania—out of poverty. Additionally, another 3 million kids nationwide, and 120,000 in Pennsylvania, will be made less poor.

The child tax credit gives families a refundable credit of 15% of their earnings above $2,500—which means that the family receives a cash benefit if they have no federal tax liability.  The law makes three important changes in the child tax credit that provides additional benefits to low-income families.

At present, 19 million children in the country receive less than the full credit because of the current “refundability cap” that limits benefits to families with incomes below $40,000. This legislation lifts the cap from the current limit of $1,600 per child to $1,800 per child for tax year 2023 and $1,900 per child in tax year 2024. In 2025, the cap would be lifted entirely and the maximum credit of $2,000 will be available to all families.

In addition, under current law, many low-income families with two or three children receive the same credit as a family with one child at the same earning level. The legislation would allow a credit for each child in a family as is now the case for higher-income families. So, for example, a single parent with two children who earns $13,000 working part time as home health aide currently receives a refundable tax credit of $1575, which is 15% of their earnings above the $2,500. Under the new law, the family would receive $1,575 per child or a total of $3,150.

Finally, the proposed legislation adopts a lookback provision that allows families whose earnings decline in a year to use the prior year’s income to calculate their tax credit. This would help families who experience a temporary drop in their income from also suffering a drop in their child tax credit. This is especially important because of the volatile nature of the low-income job market.

A number of business tax credits are restored as part of the compromise legislation. While we at the Pennsylvania Policy Center have some doubts about the usefulness of these provisions, we welcome this compromise because the benefits to low-income children are so important.

The expansion of the child tax credit under the American Rescue Plan was much larger than under this proposal—and we fervently hope that a similar program will be enacted in the future. Democrats recently put forward a slightly bigger program that would have increased the tax credit for low-income families even more, by ending the exemption of the first $2500 in earnings in the calculation of the credit, and by raising the 15% phase-in rate. But this current legislation, which is rightly targeted to benefit the lowest income families, is a necessary and promising first step in that direction.

The entire program is, rightly, paid for by making administrative and enforcement changes to the Employee Retention Credit, a provision added to the tax code during COVID that has been abused.