In his annual budget address on Wednesday, Gov. Tom Wolf outlined a $40.2 billion spending plan he says will reduce taxes for working class families and invest nearly $2 billion in new resources in the public education system.
But, his plan to raise the personal income tax on households earning above $84,000 for a family of four, was quickly denounced by business leaders who say it will crush already suffering small business owners.
Under the governor’s plan, 33% of Pennsylvanians would see their income tax increase 46%, from 3.07% to 4.49%. For example, a married couple with two children would pay no PIT if they make less than $50,000. The same family making $84,000 receive a tax cut.
But a four-person family with household income of $100,000 would pay an additional $1,400 a year.
Rep. Torren Ecker (R-Adams/Cumberland) said that the tax increases are an additional punch to the gut for small businesses attempting to recover after the pandemic.
“The governor’s proposed personal income tax increase of nearly 50% would take direct aim at the paychecks of Pennsylvanians who have been hit hardest by the pandemic,” he said. “I also find it alarming that the governor’s plan would harm the businesses that are already struggling to recover from the closures since most small businesses themselves pay the personal income tax.”
Wolf said that, while Pennsylvania’s personal income tax rates are relatively low and a good deal for residents who are financially secure, lower income residents pay the same rates.
The tax increase would add nearly $3 billion to the general fund budget, which would help pay for increases to basic and special education funding, the state’s subsidized child care program and more.
“When you go to file your taxes every year, you have to pay the same exact rates as I do,” Wolf said. “I want to help working families get ahead by reducing their taxes. If you’re married with two kids, and you earn less than $84,000 a year, I suggest we give you a tax cut.”
The Wolf Administration argues that the tax cut will help more than 400,000 business owners, saving over $240 million. In a statement to the Central Penn Business Journal, Lyndsay Kensinger, Wolf’s press secretary, said that the average tax decrease would be $600.
Wolf’s proposed personal income tax hike is not the only policy that the business community is wary of. Legislative priorities listed in the proposal include raising the state’s minimum wage to $15-an-hour, adding a new tax on the natural gas industry and a requirement that related groups of businesses combine their income for tax purposes.
“Many of the policies recently outlined by the governor as among his top legislative priorities for the year… will only increase the cost of doing business in the state and make the Commonwealth less competitive overall,” said Gene Barr, CEO and president of the Harrisburg-based PA Chamber of Business and Industry.
While many businesses may see a decrease in taxes through Wolf’s plan, businesses that are small enough to receive the cut would also be the most likely to see adverse effects from an increase to the minimum wage.
Wolf’s budget plan also calls for a 25% decrease in Pennsylvania’s Corporate Net Income Tax, an increase of funding to the state’s workforce development system to help workers impacted by the pandemic find work, and the legalization of recreational cannabis.
While he is glad to see the Wolf Administration acknowledge the state’s high corporate net income tax of 9.99%, Barr said that the state would need to enact further decreases to stay competitive with other states.