Tax Justice Digest stories about Pennsylvania
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On the other side of the country, Oregon legislators gave final approval to changes in their corporate and personal income taxes that are expected to yield more than $700 million in additional revenue; those changes are expected to be signed into law by Governor Ted Kulongoski. Among the changes pending in Oregon are the creation of two new (albeit temporary) top income tax brackets with rates of 10.8 and 11 percent and increases in the state's corporate minimum tax.
For more on the need to raise additional revenue in
Of course, as Sharon Ward, the Executive Director of the Pennsylvania Budget and Policy Center (PBPC) has recently explained,
this is precisely the wrong approach for states to take in a
recession. She notes that "Pennsylvania should actually be spending
more, not less, to jumpstart the ailing economy" and argues in favor of
tax policy changes that would generate additional revenue while making
the state's tax system more fair, such as taxing dividends or closing
corporate tax loopholes through the use of combined reporting.
Fortunately,
Rendell's opposition to a needed tax increase may turn out to be as
effective as the Eagles' attempts to stop Larry Fitzgerald. House
Appropriations Committee Chairman Dwight Evans said this past week that
he believes that "there will be some sort of a tax increase in order to solve this problem," though it may be the last resort.
Vendor discounts allow retailers to legally keep a portion of the sales tax revenue they collect as compensation for the costs involved in collecting and remitting the tax. Twenty six states currently provide retailers with such compensation, amounting to a total of over $1 billion in annual revenue losses for those states.
The policy prescription in many states is fairly clear. While there may be room for debate over whether any compensation is warranted, what is not in question is that there should be a sensible limit on the maximum amount that any one business can receive via this practice. As author Philip Mattera points out, “the main expenses that retailers incur with regard to sales taxes, especially software programs to track them, are fixed costs that do not rise in tandem with growth in receipts.”
Those states without such a limitation in many cases forfeit quite substantial amounts of revenue through vendor discounts. Illinois, for example, loses over $126 million annually due to the practice. Texas, Pennsylvania, and Colorado each lose in the neighborhood of $70 - $90 million per year. Thirteen of the twenty six states offering vendor discounts do not cap the amount any individual retailer can claim. In addition, five states that do impose limits on maximum compensation have set those limits at seemingly excessive levels, ranging from $10,000 to $240,000 per retailer.
For state-by-state details on existing vendor compensation practices, as well as other ways in which retailers are being subsidized through the sales tax, see the report here.
But a new development in the already drawn-out debate over Pennsylvania’s plan to institute “direct pricing” (i.e. tolls) on its Interstate 80 highlights some serious equity issues involved in making the transition to this form of transportation finance.
A national trucking organization this week announced its opposition to the tolling plan, instead offering its support to a ten cent gas tax hike to raise the money Pennsylvania needs. The reasons for their opposition provide some very useful insights into the equity issues associated with a transition to a direct pricing regime.
While tolling every road could distribute the obligation for funding transportation across all drivers, singling out specific roads for tolls disproportionately affects those people who regularly travel on those roads. After all, these people continue to pay gasoline taxes, vehicle registration fees, inspection fees, and various other charges dedicated to funding transportation. While the revenue from all of these other taxes and fees is being sent all over the state to fund various projects, drivers who rely primarily on tolled roads for their commute (as well as businesses who rely on those roads to transport their goods) are forced to pick up their own tab at the tollbooth. As the trucking industry argued, what the state needs are “alternatives that make all Pennsylvanians responsible for paying for our roads, not just a certain segment.”
Pennsylvania has to some extent attempted to minimize the impact of these tolls on frequent users of the road by proposing to let drivers with the E-ZPass electronic toll collection system installed in their cars travel some short distance before tolling kicks in. But this benefit would not help those who take longer trips down I-80, nor would it help the trucking industry, which is excluded from this benefit. Much of the responsibility for paying tolls would therefore fall on out-of-state travelers and trucking companies. That is certainly appealing to Pennsylvania lawmakers seeking to please their constituents.
But some of the burden would also fall on those living closest to I-80. And in any case, is there any reason why I-80 travelers (Pennsylvania residents or otherwise) in general should be contributing more to transportation than users of other roads? As tolling continues to be gradually implemented in a piece-meal fashion, look for more equity concerns of this sort to arise.
Aside from when a new home is built, or when major renovations on an existing home are completed, state law specifies that a property can only be reassessed for property tax purposes as part of a locality-wide reassessment of all properties. But reassessing all properties can be a daunting task for a locality, as evidenced by the fact that some localities haven't reassessed in over 30 years.
In the period between reassessments, properties that appreciate in value at an above-average rate can see significant tax benefits. And while "spot reassessments" of specific properties are technically not permitted, localities are allowed to request a "reverse appeal" of the original assessments of specific, apparently "under-assessed" properties. This practice has produced hundreds of millions of dollars in extra tax revenues for many localities (drawn mostly from people whose property tax bills were legitimately too low) though the piece-meal fashion in which those revenues have been raised creates serious inequities between people singled out for "reverse appeals", and those who continue to fly under the radar.
Pennsylvania legislators recently mustered overwhelming support for a bill ending this practice, though the Governor vetoed the bill on the grounds that it would significantly reduce localities' ability to raise revenue. The legislature likely has the support it needs to override such a veto should they try again, but some policymakers are hoping to take things a step further and use this unsettling practice as a springboard for enacting a more comprehensive, frequent, and rational property reassessment system. What precisely that will involve is unclear, though some local officials have already suggested that mandates for more frequent property reassessments should be coupled with state aid to cover the inevitable administrative burden of such a policy change.
The governors of Illinois and Pennsylvania are each seeking to follow the feds’ lead and stimulate their economy with tax breaks. Governor Rendell’s plan in Pennsylvania is to rebate up to $400 to low-income families with children, with the precise amount of the rebate being determined by the number of parents, number of children, and income earned in the family. In Illinois, Governor Blagojevich’s plan is similar to Rendell’s proposal in that it is only available to families with dependent children, though it differs in that its income eligibility thresholds are much higher: single-parent families earning up to $75,000, and two-parent families earning $150,000 will be eligible for the full $300 per child credit. Blagojevich’s plan could be made more effective and less expensive by lowering the income limits to make these credits available primarily to the low and middle income families who would be most likely to immediately spend tax rebates on everyday needs.
Fortunately, both of these stimulus proposals are refundable, meaning that families receive the money regardless of how much, if any, state income tax they paid. This is an extremely important component of any fair credit or rebate since even though those in the greatest need often pay no income taxes because of their low incomes, they do pay huge portions of their incomes in regressive sales and property taxes.
One additional flaw with each plan is that low-income individuals without children will see no benefit. In terms of both stimulating the economy and assisting those in need, both of these plans could be improved by extending the rebates/credits in some form to individuals without children. This could be done very easily in Illinois by lowering the income eligibility criteria and using the resulting savings to assist low-income, childless individuals.
A battle over what to do with projected budget surpluses appears imminent in Pennsylvania. Gov. Ed Rendell proposed Monday to use much of the budget surplus to provide rebates of up to $400 to low-income households. Though much less effective than enacting an Earned Income Tax Credit (EITC), this proposal would do a great deal not only to improve tax fairness and the lives of those most in need, but also to stimulate the economy by putting money back in the hands of low-income individuals sure to spend it on their daily needs.
By contrast, Pennsylvania Republicans have proposed using the surplus to cut the income tax rate. Unlike the Governor’s proposal, which involves changes only to the current year’s tax collections, the Republican plan would alter the Pennsylvania tax code in a way that would permanently restrict the state’s ability to raise revenue. A broad income tax rate cut would also benefit the wealthiest Pennsylvanians far more than it would low and middle income taxpayers, and would completely wipe out the surplus and likely force future legislators to chose between cutting services and raising other taxes.
In addition to this plan, some legislators have suggested a “zero growth budget” where government spending increases would be strictly limited to the rate of inflation. Such limitations have proven disastrous for state governments, the most famous example having taken place in Colorado where a similar measure was suspended after education and other public services sharply deteriorated without adequate funding.
The author of the O'Malley administration report that makes the economic development-based pitch for slots, Thomas Perez, claims that the introduction of slots in neighboring states has "revitalized the previously moribund horse racing industries in those states." Perez describes his report as "a fact finding tour of racetracks in Delaware, West Virginia and Pennsylvania." Perez's research techniques included counting the number of Maryland license plates in a West Virginia parking lot -- but his time might have been better spent just asking West Virginia's Racing Commission chairman, who sees "no correlation... inverse, in fact" between their 1994 introduction of slots at racetracks and the current health of that state's racing industry.
