Pennsylvania sales tax could become 2nd highest in nation
HARRISBURG — Pennsylvania's natural gas industry has fended off higher taxes for yet another year, while a potential deal to end a budget stalemate now in its fifth month would make the state's sales tax the nation's second highest.
Gov. Tom Wolf's top priority has been a record increase in education funding, and an agreement by top Republican lawmakers on that issue was enough for the first-term Democrat, his press secretary, Jeff Sheridan, said Tuesday.
In a brief statement to reporters, Wolf acknowledged that many details in the proposed budget remain unsettled, and his ambitious hope is to have work on it finished and through the Legislature by Thanksgiving.
Some Democrats are restless over the tax trade-off.
House Democratic Whip Mike Hanna, D-Clinton, said it may be hard for Democrats to support a deal in which companies like Exxon Mobil Corp. — a major gas-exploration company — will not pay more, but every resident will when they buy everything from a car to an outdoor grill.
Sen. Daylin Leach, D-Montgomery, said the budget deal does more harm than good. It takes a pass on a tax that Pennsylvanians wouldn't even pay — on Marcellus Shale production — while increasing the most regressive tax, the sales tax, largely in order to lower a less regressive school property tax, Leach said.
"We have the highest rate of income equality in 100 years in this country and making the tax structure more regressive makes that worse, not better," Leach said.
Under the proposed budget agreement, Pennsylvania's sales tax would rise to 7.25 percent, up from 6 percent. California's is the nation's highest at 7.5 percent.
The rate would rise to 8.25 percent in Allegheny County, where it is currently 7 percent, and to 9.25 percent in Philadelphia, where it is currently 8 percent. According to the Washington, D.C.-based Tax Foundation, there are local sales taxes in at least 12 states that exceed 9.25 percent.
Some Republicans, as well as the Pennsylvania Chamber of Business and Industry, said they could not fully judge the proposed deal without seeing more details on changes they had sought to the state's public pension and wine and liquor systems.
Wolf's campaign for governor and his budget proposal in March had relied heavily on his argument for making the booming natural gas industry pay its "fair share." However, plunging natural gas prices had frayed any short-term hope of capturing significantly more tax revenue from the industry's production, and Republicans ultimately opposed increasing taxes on the industry.
"Doesn't make any money and it's bad public policy at this point in time because the industry is on its back," said Senate Majority Leader Jake Corman, R-Centre. "Why would you hit another body blow to an industry on its back right now?"
Wolf has not necessarily dropped his pursuit of a Marcellus Shale tax for future budgets, Sheridan said. Then-Gov. Ed Rendell first proposed a severance tax on the industry in 2009.
For now, the impact fee on drilling that Pennsylvania enacted in 2012 comes to an effective tax rate of above 4 percent, putting it in the middle ranks of other states, according to the Independent Fiscal Office. Should gas prices rebound, the effective tax rate of the impact fee would drop Pennsylvania back down to among the nation's lowest, said Matthew Knittel, the office's director.