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Democratic Senators, Community Leaders Call for State Tax Reform
On May 11, 2016
HARRISBURG, May 11, 2016 – At a news conference held at the state capitol today, State Senator Art Haywood joined Senate Democratic colleagues and community leaders calling for tax reform to protect middle and low-income Pennsylvanians. At the event, Haywood introduced legislation – Senate Bills 1257 and 1258 – that would reduce the tax burden for everyday Pennsylvanians.
“At a time when our state and nation seem rigged against working people, when our minimum wage remains outrageously low, when schools and social services have been drained of funds – it is a crime that our commonwealth’s tax system is also stacked against everyday citizens,” Senator Haywood said. The Institute for Taxation and Economic Policy placed Pennsylvania on the “Terrible Ten” list of states for unfair taxation in 2015. The researchers found that low-income Pennsylvanians pay three times the tax share of the wealthy in Pennsylvania, while middle-income earners pay twice as much as the well-off.
Senator Haywood introduced a two-part legislative package at the press conference, noting that he was open to additional suggestions for inclusion in the reform effort. First, SB 1257 would amend Article VIII, Section 1 of the Pennsylvania Constitution to allow for graduated taxation of income. The amendment would make it possible for Pennsylvania to tax middle income families at a lower rate than those who are high-income. All of the states surrounding Pennsylvania have graduated taxation according to data from the Tax Foundation.
Second, SB 1258 would impose a 4% tax on non-wage, non-interest income classes that are concentrated among the most affluent. The tax would apply to net profits; dividends; net income derived from rents, royalties, patents and copyrights; gambling and lottery winnings; and net gains derived through estates and trusts. According to the Pennsylvania Budget and Policy Center, this legislation could add up to about $1.2 billion in revenue by the end of the 2017-18 fiscal year.
“While Pennsylvania is struggling to manage a more than $1 billion deficit, we cannot afford to continue requiring low and middle income families to pay double or even three times as much as the wealthy,” Haywood said. “What we need is a balanced tax system.”
SB 1258 complies with the Pennsylvania Constitution’s uniformity clause. In Aldine Apartments, Inc. v Commonwealth, the Pennsylvania Supreme Court decided the uniformity clause requires all taxes to be uniform “upon the same class of subjects” so long as a reasonable, non-arbitrary distinction exists relative to classification. Additionally, the bill’s impact on small businesses would be limited. Under current Pennsylvania law and regulations, if owners of small businesses classified as “S” corporations are employees of the corporations, their income could be classified as “compensation,” and would not fall within the classes of income impacted by SB 1258.
Joining Haywood in support of the legislative reform package were Senate Democratic leadership Jay Costa and Vincent Hughes. Senator Larry Farnese also voiced his support in a statement. “By ‘fair tax reform’ we mean taking the pressure off the people who can least afford to pay for the corporate welfare handouts that have increased under Republican leadership,” Senator Farnese said. “Fair is fair. The people and businesses at the top must stop depending on the people at the bottom to keep them afloat.”
Community leaders representing Pennsylvania’s Choice, a newly-formed non-partisan coalition for a balanced state budget, advocated for the legislation. Marc Stier of the Pennsylvania Budget and Policy Center and Susan Spicka of Education Voters PA, both member organizations of Pennsylvania’s Choice, said the bills could bring important changes to the commonwealth: “Pennsylvania’s uniformity clause has made it difficult to adequately fund services like education while protecting everyday people from high taxes. By amending our state’s constitution, we can ensure middle-class and working people are not unfairly burdened with high taxes,” said Stier. “At the same time, implementing a tax on classes of income concentrated among the wealthy would create a more balanced tax system for all of us without any constitutional changes.”
As 2016-17 state budget conversations focus on addressing the structural deficit facing the commonwealth, dozens of community organizations across the state have joined Pennsylvania’s Choice to advocate for sustainable new sources of revenue as an alternative to continued cutbacks. Senator Haywood has supported Pennsylvania’s Choice, and says his legislation would soften the impact of tax increases on middle and low-income families.
“My hope is that this reform package opens up a responsible revenue discussion in Pennsylvania that looks at the real impact of our budget on everyday people,” Haywood said. “We must lay the groundwork to pay for schools, troopers, nursing home care and other state government services by protecting both the middle-class and those living paycheck-to-paycheck from shouldering the heaviest tax burden in our state.”