Tax Justice Digest stories about Pennsylvania
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.
Pennsylvania Governor Ed Rendell has proposed a new "Oil Company Gross Profits Tax" on oil companies doing business in the state. The tax, which would be levied in place of the state's regular corporate profits tax, would be calculated using "combined reporting," a loophole-closing technique that has already been enacted in two states this year, and is estimated to raise more than $750 million a year. A new report from the Pennsylvania Budget and Policy Center argues that Rendell's proposal would be a sustainable and fair funding solution for Pennsylvania's transportation funding needs. Read the report here.
As expected, Massachusetts Governor Deval Patrick this week joined the ranks of chief executives calling for the use of combined reporting of state corporate income taxes to combat tax avoidance by large and profitable companies. Like the Governors of New York, Pennsylvania, and Iowa, Governor Patrick, in his FY2008 budget plan, recommended adopting this approach to corporate taxation, which would require corporations operating in multiple states to report all of their income — including that attributable to subsidiaries. This would negate any tax benefit derived from accounting schemes designed to shift profits out-of-state. A fact sheet from the Massachusetts Budget and Policy Center explains how combined reporting works and why it's needed in the Bay State. While Martin O'Malley has not yet added his name to this growing gubernatorial roster, Maryland legislators this week considered a bill to institute combined reporting in their state. ITEP Executive Director Matt Gardner was among those who testified on the measure.
State corporate income tax reform is gathering momentum in 2007, as more and more states are considering adopting an important corporate tax reform: combined reporting. Governors in New York, Iowa and Pennsylvania have already proposed this important loophole-closing reform, and newly elected Massachusetts Governor Deval Patrick is sending signals that he may follow in their footsteps. Meanwhile, a new paper by the Center on Budget and Policy Priorities' Michael Mazerov gives the lowdown on an equally important corporate tax reform that could productively be adopted by every state with a corporate tax: company-specific disclosure of taxes paid (or not paid). Mazerov's paper includes model legislation for use in any state seeking to shed more light on corporate tax avoidance.
The all-important first step towards an equitable property tax is figuring out how much each home and business is actually worth. To do this perfectly, a tax assessor would need to visually inspect the inside and outside of every home — which, of course, no one actually does. But as a recent New York Times article notes, governments from Philadelphia to Florida are now relying on computerized aerial images (taken from a small plane) to detect changes in the outside appearance of homes and businesses. A Philadelphia tax administrator notes that the computerized system, which costs the city about $100,000 a year, "probably paid for itself within about two weeks." Assessment by low-flying planes may seem intrusive, but at the end of the day this is how the property tax is supposed to work. This approach is in stark contrast to the head-in-the-sand approach to property tax administration proposed by Alabama Democratic gubernatorial candidate Lucy Baxley, who has proposed ending the annual reassessment of Alabama homes.
