The Pa. legislature appears to have met a tax break it doesn’t like: one for teachers, nurses, and cops
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HARRISBURG — Harrisburg policymakers appear unlikely to embrace a signature selling point in Democratic Gov. Josh Shapiro’s first budget: a tax credit for new police, teachers and nurses.
Tax credits allow an individual or corporation to pay less to the government, and have become a fixture in the General Assembly’s economic policy toolkit in recent years.
But in recent public remarks, state Senate Republicans threw cold water on Shapiro’s plan, arguing for lowering Pennsylvania’s corporate and flat personal income taxes to benefit all industries while still expressing interest in expanding corporate tax credits to attract big businesses to the state.
“Figuring out economic incentives” to attract new projects, from microchips to new natural gas-fired power plants, “is where we have to go,” state Senate Majority Leader Joe Pittman, R-Indiana, told reporters in April.
“What names they take and what they ultimately look like, I’m open to conversation,” he said.
Budget deals between former Democratic Gov. Tom Wolf and Republican majorities in the state legislature created hundreds of millions of dollars in tax breaks by expanding existing programs or starting new ones.
In the 2017-18 fiscal year, the state handed out $477 million in tax credits, according to a December report from the Independent Fiscal Office, a nonpartisan legislative agency. That number rose to $679 million in the 2021-22 fiscal year, and is projected to reach almost $1 billion this fiscal year.
About $264 million — roughly two-fifths of the total tax break dollars awarded in the 2021-22 fiscal year — went to either individuals or corporations who donated to private school scholarships.
But the state has also approved hundreds of millions to encourage everything from concerts and helicopter flight simulators to large industrial projects that would use Pennsylvania gas or milk.
Following the trend, Shapiro proposed a relatively small credit, estimated to cost $24.7 million in its first year, in forgone tax revenue, to aid in the retention and expansion of three professions he named as critical in his March budget ask — law enforcement, nurses and educators.
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Citing retirements, many industries have complained of a shortage of skilled workers. But Shapiro singled out those three, all of which face high vacancies and low recruitment, for help in his budget address.
“This is a moment when we have to believe in people and invest in those on the front lines of teaching our kids and keeping our communities safe and healthy,” Shapiro said.
The proposal would allow newly certified members of those three professions to receive up to $2,500 off their state income taxes.
The credit would be nonrefundable — recipients would save only the amount of tax they would have paid, rather than also receiving the unused portion of the credit as a refund payment.
As The Associated Press reported in March, in order to receive the full $2,500 annual benefit with the state’s 3.07% flat income tax rate, a nurse, teacher, or cop would have to make almost $82,000 — far above the normal starting wage for those professions.
Such a setup lessens the benefit, noted policy analysts.
“If it is not refundable, then that means that the people who are earning the least are going to be left out of the credit,” Sam Waxman, deputy director of state policy research at the Center on Budget and Policy Priorities, a left-leaning Washington D.C.-based think tank, told Spotlight PA. “That’s why it is so important for credits to be refundable and to get the full value.”
Since the address, Shapiro has toured the commonwealth and touted endorsements for the program from police chiefs, nursing school presidents and a slew of young workers who might benefit from the credit.
Reception has been mixed. The credit’s limited impact on lower-wage workers has led to some ambivalence among teachers’ advocates like the Pennsylvania State Education Association, which represents 177,000 school workers across the state and is the commonwealth’s largest teachers union.
In a statement, union spokesperson Christopher Lilienthal said that Shapiro’s tax credit “misses the mark,” and argued that the state should use the proposed forgone tax revenue to instead help raise the base salary for new educators across the state.
But an even more significant roadblock to the tax credits could be state Senate Republicans, who control the upper chamber.
Pittman hasn’t been overly critical of Shapiro’s budget, calling it “reasonable” in remarks at the Pennsylvania Press Club last month. But he has also singled out the proposed tax credit as something the GOP caucus opposes, citing the need for “a plethora of skilled workers across a wide array of fields.”
“While police officers, nurses and teachers are vital to our communities, so are bus drivers, EMTs, correction officers and CDL drivers, to name a few,” Pittman said at the conclusion of budget hearings in April. “If we are going to incentivize individuals to enter our workforce, we should do that by taking less out of their paychecks.”
To that end, he called for an across-the-board cut in the state’s income tax, which already has among the lowest rates in the country, according to the Tax Foundation, a Washington, D.C.-based think tank.
On the other side of the Capitol, key Democrats who control the lower chamber have expressed interest in Shapiro’s goal of expanding the number of workers pursuing nursing, teaching and law enforcement.
State Rep. Peter Schweyer, D-Lehigh, chair of the state House Education Committee, told Spotlight PA that the proposed credit is an acknowledgment that recruiting more education workers, from classroom teachers to school psychologists to bus drivers, was a priority for the coming months of budget talks.
Schweyer added that he has some doubts about tax credits. He would prefer to directly give people money, but he said doing so was “not politically viable” when Republicans controlled both state legislative chambers and were Wolf’s primary budget negotiating partners.
The Education Committee advanced bills last week that would approve up to $50 million for $8,000 yearly scholarships to Pennsylvania college students who stay in the commonwealth to teach after receiving their diploma, offer teacher training grants and give 11th and 12th graders academic credit for tutoring younger students.
What will reach the finish line come June 30, Schweyer noted, is still up in the air, but regardless of the details, the issue is on the agenda.
“I don’t like getting caught up in the how; I like the what,” he said. “The what is getting more people into these careers.”
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