Wolf: Renters may bear bigger burden in 'half a loaf' budget
HARRISBURG — The proposed 21 percent increase in Pennsylvania's sales tax — part of a plan to end a nearly 5-month-old state government budget stalemate — will fall more heavily on people who don't own a home, Gov. Tom Wolf acknowledged on Friday.
The first-term Democratic governor suggested that the sales tax proposal was the result of concessions he had to make to Republicans who control the Legislature, telling interviewers during a regular appearance on KDKA-AM radio in Pittsburgh that the budget deal is a "half a loaf."
Wolf pointed out that his original budget plan in March sought to deliver $426 million in rent rebates to lower-income households, but Republicans opposed it. Meanwhile, Wolf and Democratic lawmakers say they would have preferred an increase in the personal income tax because they believe it does not fall as heavily on the poor.
Still, Wolf argued that the proposed tax changes are a "net gain" for taxpayers. Under the plan, the sales tax would be raised to finance an approximately $1.4 billion net reduction on about $9 billion in residential school property tax collections statewide, or about 15 percent. Of that $9 billion, $6 billion comes from primary residences, bringing that reduction to about 23 percent.
The sales tax does not apply to food, clothing or prescription drugs, and the way property taxes are levied in Pennsylvania "is even more regressive," Wolf said.
"This is half a loaf and so there's still work to be done," Wolf said. "I think Republican leaders would say the same thing. But this is a down payment on, I think, some real progress in terms of the local taxes that people are paying."
Wolf is billing the deal as delivering a record increase in aid to public schools, which was his biggest priority in budget talks, and the first substantial school property tax reductions as part of his broader goal to narrow huge funding disparities between Pennsylvania's wealthier and poorer school districts. It also would help whittle down a long-term budget deficit that Wolf has criticized as damaging to the state's credit rating and driving up its borrowing costs.
Republicans forced Wolf to make major concessions in the size of the tax increase he was seeking — it will be about one-fourth the size he sought — and they say they preferred to increase the sales tax over the income tax because it gives people more of a choice in how much they pay. Plus, out-of-state residents help foot the sales tax bill, Republicans say.
Under the proposed agreement, Pennsylvania's sales tax would become the nation's second highest, after California's.
The agreement would boost the state sales tax to 7.25 percent, up from the current 6 percent. The rate would rise to 8.25 percent in Allegheny County, where currently it is 7 percent, and 9.25 percent in Philadelphia, where currently it is 8 percent.
The income tax rate would remain the same, and Wolf lost his fight to increase taxes on the state's Marcellus Shale natural gas industry. An increase in the cigarette tax is still likely, but it is one of the many elements of the proposed deal that are still under negotiation between Wolf and Republican legislative leaders.
About $2 billion in new sales tax collections would be passed along to residential homeowners as school property tax reductions. However, Wolf and Republican lawmakers are still fighting over how that money would be distributed, a major point of contention in the ongoing negotiations.
The net school property tax reduction would be $1.4 billion since, under the agreement, approximately $600 million in slot-machine gambling receipts from casinos that currently go to property taxpayers would shift to pay down school employee pension obligations.