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Four Major Proposals Will Make Pennsylvania Taxes Fairer

The Pennsylvania House today passed the second and third of four major tax proposals: an expansion of the Child and Dependent Care Enhancement Tax Credit (HB 1259) and the creation of a state Earned Income Tax (HB 1272). These actions follow on House passage of an expansion of the Property Tax / Rent Rebate Program (HB 1110) on January 6. The House is expected to act soon to pass the repeal of the gross receipts tax and sales and use tax on wireless cell phone services (HB 1138).

Taken together, the four bills that have been, or will soon be, passed by the House of Representatives will reduce taxes for working people in Pennsylvania and make our state’s tax system fairer. While there is more to be done to fix our upside-down tax system in which the wealthiest Pennsylvania families pay taxes at lower rate than low- and moderate-income families, these proposals are a big step in the right direction. We are grateful to the Democratic House leadership for moving these proposals to the floor and to both the Democrats and Republicans who voted for them.

The first proposal passed today was an expansion of the Child Tax Credit, first enacted last June, in the budget for the current fiscal year. The Pennsylvania Child Tax Credit piggybacks on the federal child and dependent tax credit. The initial version of the tax passed last year gave Pennsylvania taxpayers with children a tax credit equal to 30% of the employment-related child and dependent care expenses claimed on a family’s federal tax return of up to $3,000 for one dependent or $6,000 for two or more dependents. The new bill gradually expands the credit to 50% of the child and dependent expenses with a cap of $5,000 for one dependent and $10,000 for two or more. The child and dependent tax credit benefits all families who pay for child and dependent care, but because those costs are a bigger burden on low- and moderate-income families, and because of the cap on allowable costs, the tax credit provides extra help for families at the bottom and middle of the income scale. Representative Tina Davis (D-Bucks) was the prime sponsor of the legislation, which has also been championed by Representative Melissa Shusterman (D-Chester) in recent years.

The second proposal passed today was a state Earned Income Tax Credit (EITC). This is a proposal that the Pennsylvania Budget and Policy Center has supported for a number of years. The state Earned Income Tax Credit piggybacks on the Federal Earned Income Tax Credit, which is one of the major programs that lift families out of poverty in the United States. The state EITC will give Pennsylvania families 25% of what they received under the federal credit. Families will have to choose between receiving this credit or the credit allowed under the existing tax forgiveness program. The Pennsylvania Policy Center (PPC) estimates that a new state EITC will benefit families with incomes roughly up to $22,000 in income more than the existing tax forgiveness program. (PPC will present a full analysis of the new proposal soon.) Representative Christina Sappey (D-Chester) was the prime sponsor of the legislation, which has been championed by Representative Sara Innamorato (D-Allegheny) in recent years.

Last week the House passed HB 1100, an expansion of the Property Tax / Rent Rebate Program, which reduces property taxes for seniors and people with disabilities. This legislation, which was proposed by Governor  Josh Shapiro in his budget address, raises the income limits for the Property Tax and Rent Rebate Program from $35,000 for homeowners and $15,000 for renters to $45,000 for both homeowners and renters. In addition, under the legislation, people eligible for the program will see the maximum rent rebate increase from $650 to $1,000 for taxpayers with incomes below $8,000 with smaller, but substantial, increases for taxpayers with higher incomes. The legislation also adds a cost of living adjustment that will allow the income limits and benefits to increase with inflation in the future. Based on an analysis prepared by the Institute for Tax and Economic Policy, PPC expects that 10.5% of taxpayers and 15.8% of taxpayers with incomes below $82,000 will see their taxes cut due to the expansion of the program. Less than 4% of taxpayers with incomes above $82,000 will receive a tax cut. This proposal was sponsored by Representative Steve Samuelson, (D-Northampton), Democratic chair of the House Finance Committee.

The House is also expected to pass HB 1138 to repeal the gross receipts tax and sales and use tax on wireless cell phone services (HB 1138). This proposal was also part of Governor Shapiro’s budget and is sponsored in the House by Representative Ben Waxman (D-Philadelphia). Like most other gross receipts and sales taxes, this one is regressive in nature in that it takes a larger share of income from those with low incomes than those with high incomes. That is especially true when one considers that owning a cell phone is no longer optional for most working people and those who care for dependents.