FOR IMMEDIATE RELEASE: January 10, 2024
RELEASE: Pennsylvania’s Tax System Exacerbates Inequality, In-Depth National Study Finds
State Has the 4th-most Regressive Tax Code in the Nation
Harrisburg, PA — Pennsylvania’s tax system is upside-down, with the wealthy paying a far lower share of their income to taxes than low- and middle-income families. That’s according to the latest edition of the Institute on Taxation and Economic Policy’s Who Pays?, the only distributional analysis of tax systems in all 50 states and the District of Columbia.
In sharing the data, Marc Stier said, “The new report from our national partner, the Institute on Taxation and Economic Policy, shows that Pennsylvania has one of the most upside-down state and local tax systems in the country. We should be ashamed to live in a state with the highest rate of taxation for the bottom 20% of families arranged by income and in which those families’ taxes are more than twice the rate of the top 1%’s.”
In his response to the data, Senator Art Haywood (D-Montgomery and Philadelphia) said, “It is clear that the tax dollars of everyday Pennsylvanians are being vacuumed up to the richest. In the last decade, seven billion dollars have been vacuumed up to the richest in Pennsylvanians. We can change our taxation system so that everyday, hard-working people are no longer left behind.”
Also addressing the new report, Representative Chris Rabb (D-Philadelphia) said, “In a state where the bottom 60% percent of income earners on average pay at or nearly double the tax rate of what the richest Pennsylvanians pay, it’s time ALL residents pay their fair share.
“The Fair Share Tax Plan bill — HB 1773 — will correct the long-standing injustice of this #taxpolicy by increasing the tax on passive income from things like net profits, dividends, net gains derived from rents, royalties, patents and copyrights and net gains derived through estates and trust.
“As a result, HB 1773 will generate an additional $6 billion in revenues all while lowering or maintaining the tax rate for the vast majority of Pennsylvanians.”
The report’s key findings for Pennsylvania (See presentation from the event here.):
- The lowest-income 20 percent of taxpayers face a state and local tax rate that is 152 percent higher than the top 1 percent of households. The average effective state and local tax rate is 15.1 percent for the lowest-income 20 percent of individuals and families, 11.4 percent for the middle 20 percent, and 6 percent for the top 1 percent.
- Pennsylvania has the 4th-most regressive tax system in the nation.
- Pennsylvania is one of 41 states that tax the top 1 percent less than every other income group, and it is one of 34 states that taxes its poorest residents at a higher rate than any other group.
Nationally, tax systems in 44 states exacerbate inequality by making incomes more unequal after collecting state and local taxes, while systems in six states plus D.C. reduce inequality, the report finds. On average, across the country, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.3 percent for the lowest-income 20 percent of individuals and families, 10.5 percent for the middle 20 percent, and 7.2 percent for the top 1 percent.
“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet when we look around the country, the vast majority of states have tax systems that do just that,” says Carl Davis, ITEP’s research director. “There’s an alarming gap here between what the public wants and what state lawmakers have delivered.”
PA-specific polling data on taxing corporations and the ultra-wealthy can be found here.
Recent policy changes have exacerbated or lessened regressivity in state tax systems, depending on the choices made by lawmakers.
About the report:
Who Pays? is the only distributional analysis of tax systems in all 50 states and the District of Columbia. The comprehensive 7th edition of the report assesses the progressivity and regressivity of state tax systems by measuring effective state and local tax rates paid by all income groups. No two state tax systems are the same; this report provides detailed analyses of the features of every state tax code. It includes state-by-state profiles that provide baseline data to help lawmakers and the public understand how current tax policies affect taxpayers at all income levels. More than 99 percent of all state and local taxes, measured by their revenue contribution, are included in the analysis.
ITEP is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations on how to shape equitable and sustainable tax systems. ITEP’s expertise and data uniquely enhance federal, state, and local policy debates by revealing how taxes affect people at various levels of income and wealth, and people of different races and ethnicities.
About Pennsylvania Policy Center:
Through its research and policy development, the Pennsylvania Policy Center creates the tools political officials, opinion leaders, grassroots organizations, and the people of Pennsylvania need to expand our vibrant democracy, secure our freedom, and seek economic justice in Pennsylvania. Our work draws on a close connection to Pennsylvanians in every corner of the state, who tell us the problems they face, and robust and credible public policy research and analysis that identifies the sources of these problems and proposes solutions. These tools enable Pennsylvanians in and out of government to make their voices heard and create public policies that reflect their ideals and serve their interests.
Pennsylvania Policy Center is the state affiliate of the Center for Budget and Policy Priorities.