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Why Gov. Tom Wolf changed his mind on his campaign income tax plan

Written by Ed Mahon, York Daily Record | May 5, 2015 5:04 PM
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Photo by York Daily Record

(Harrisburg) -- When Tom Wolf talked about income taxes as a candidate for governor, he said a married couple earning between $140,000 and $180,000 a year shouldn't pay any more in taxes. He said he considered that middle class, and he proposed a tax plan he said would give the middle class its first income tax cut in more than 20 years.

But under the tax plan he proposed as governor, he's offered a different cutoff level and criteria for getting a tax break.

His administration says a typical family of four earning $100,000 a year would pay higher income and sales taxes, but get a net tax break of $7 because of lower school property taxes. His administration has released projections on three other home-owning families of four -- all earning under $100,000 -- but not other types of families.

During a recent interview, Wolf said that $140,000 figure from the campaign "was a guess."

Wolf's change on who should pay more in taxes is part of a larger shift in the Democrat's tax plan from the campaign to office. During the campaign, he proposed a progressive income tax system, one in which people would essentially pay a higher rate based on how much money they made.

Now, Wolf said he's trying to achieve the same thing -- a fairer tax system -- but in a different way.

"In a campaign you propose things and people push back," Wolf said during an April 10 one-on-one-interview at York College's Kings Mill Depot. "And I was convinced that there might be maybe more complications in trying to make the income tax progressive in the way I wanted to do it from a constitutional point of view than actually achieving a fairer tax system through the property tax route."

As for who would pay more or less, Wolf said the $100,000 threshold his administration has cited is held out as a guide. He made the case that people should focus on the big picture.

"I think I need to make sure we're not getting trapped into this, you know, who pays more?" Wolf said, adding, "You can come up with the most unlikely scenario and say ... this person -- doing this and buying this product and living here and sending this many kids to that school -- is going to pay two cents more."

He said his proposal would improve schools and Pennsylvania for everyone.

What Wolf said during the campaign

Wolf planned on creating the progressive income tax system by allowing all taxpayers to exempt a certain amount of their income for tax purposes. He said his goal was to cut income taxes for people making less than $70,000 to $90,000 -- and double that amount for a married couple.

During an LNP editorial board interview in October, Wolf was asked to address a charge from his opponent, Republican Gov. Tom Corbett, that his plan would be unconstitutional.

"That just shows a lack of understanding of what I'm talking about," Wolf said.

At the time, Wolf said there was a "germ of truth" in the unconstitutional issue.

In 1971, the state Supreme Court struck down an income tax plan, ruling that various adjustments, deductions, and exemptions built into it created different levels of taxes, and thus it violated a constitutional requirement that all taxes be uniform on the same class of people.

During the campaign, Wolf acknowledged that anything could happen in a court case, but he said his progressive income tax plan was in line with the system Pennsylvania has had for decades.

He pointed to a tax credit enacted in 1974 that gives tax forgiveness based on income. But a 1968 change to the state constitution specifically allows people to be treated differently for tax purposes "because of age, disability, infirmity or poverty."

Why Wolf changed his mind

When Wolf proposed his budget on March 3, he called for several tax changes. He wants to raise the personal income tax rate from 3.07 percent to 3.7 percent, raise the state sales tax from 6 percent to 6.6 percent, and expand what's covered by the state sales tax.

His administration said he would reduce property taxes through a $3.8 billion package, which includes about $600 million of existing gambling revenue that is already used for property tax reduction.

But Wolf didn't call for the progressive income tax system that he talked about during the campaign.

Wolf said he still thinks his campaign proposal would be constitutional.

"But I'm not a lawyer," he said. "I'm certainly not a constitutional lawyer."

He said he talked to people he respected about the issue, but he didn't say who.

G. Terry Madonna, a pollster and political science professor at Franklin & Marshall College, said he thinks one reason Wolf switched plans was because he was looking to attract some Republican votes. Some Republican lawmakers previously backed property tax reduction and elimination bills that would get new revenue through the income and sales taxes.

"It shows that willingness to combine Republican and Democratic ideas," Madonna said.

But those statewide property tax reduction and elimination proposals failed to pass in the Republican-controlled General Assembly in past sessions. And many Republican lawmakers have objected to Wolf's specific proposal, saying that, among other things, it only uses some of the new revenue for property tax reduction.

Wolf's proposal also includes increases for a poverty exemption. Currently, a family of four earning $32,000 a year is eligible for complete income tax forgiveness. Under Wolf's proposal, the threshold would increase to $36,400 a year. Partial tax forgiveness thresholds would also increase.

The Department of Revenue estimates that the amount of tax relief offered in 2015-16 would be $270.8 million without the higher threshold, but would increase by $90.2 million under Wolf's plan.

Wolf's plan would give $500 in relief for renters in households earning up to $50,000 a year.

Would people who make more still pay more?

The state Independent Fiscal Office says yes. An April 23 report from the office said the higher thresholds for tax forgiveness would make Pennsylvania's personal income tax "slightly more progressive."

The property tax proposal is more progressive than the current system, as the Wolf administration would give a greater share of revenue to districts with high poverty and high taxes.

That progressiveness is one of the things Republican lawmakers have objected to. House Education Committee Chairman Stan Saylor, R-Windsor Township, has said Wolf's plan would send too much money to city districts. State Rep. Seth Grove, R-Dover Township, has called it a "redistribution of wealth."

The Independent Fiscal Office report estimated that, by 2018-19, people earning $100,000 and above would shoulder nearly two-thirds of the tax burden of Wolf's proposed various tax increases.

The Wolf administration has agreed with the report's finding when it comes to whether the proposal is progressive.

"Most of the new revenues that are raised are being paid for by wealthy Pennsylvanians, as opposed to working-class and middle-class families," John Hanger, Wolf's secretary of planning and policy, said in an April 24 conference call.

But Wolf administration leaders have disagreed with another conclusion from the Independent Fiscal Office.

That same IFO report concluded that all income groups would see a tax burden increase in the governor's plan. The report said that despite "significant property tax and rent relief," people earning less than $25,000 would have more of a burden because of sales, tobacco and some other tax increases.

The Wolf administration has stood by its own numbers. Hanger said the IFO and administration used different methodologies in their studies. He said the administration remains confident that, when it comes to the personal income, sales and school property taxes, "most Pennsylvania homeowners actually win" under the governor's plan.

Contact Ed Mahon at 717-771-2089.

Where the money would come from

An April 23 report from the state Independent Fiscal Office projected that, by 2019-20, Gov. Tom Wolf's budget proposal would equal a net increase on state and local taxes of $5.2 billion. According to the projection, $9.8 billion in tax increases would be offset by $4.6 billion in tax and rent relief.

The largest share of new revenue, nearly $3.6 billion, would come from expanding what is covered by the state sales and use tax and taxing the new goods and services at the higher rate of 6.6 percent, according to the estimates.

Also of interest

Gov. Tom Wolf's sales tax expansion would cover child care, nursing homes and more.

Gov. Tom Wolf backs off campaign tax plan.

Wolf Tracker.

Play the Pa. sales tax revenue match game.

Gov. Wolf: What his emails do and don't show, and a look at email access fights for other politicians.

Who gets time with Gov. Tom Wolf: Work calendar gives a view behind closed doors.

Wolf on city schools, education funding

Listen to Gov. Tom Wolf talk about York city schools and education funding.


This article comes to us through a partnership between York Daily Record and WITF. 

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Comments: 2

  • Larry img 2015-05-05 18:19

    A regressive flat tax is not equal.

    3.70% means more to one whose family income is $60,000 than to on whose income is $2M and who has equity income is large too.

  • Tommy Rich img 2015-05-20 07:08

    Some of the distasteful provisions of the mammoth Wolf tax increases and tax extensions would not be as unpalatable had the governor undertaken an elimination of property taxes rather than a half measure, small reductions for those of us who pay many thousands of dollars per year for this onerous levy. He has declined to slay the beast of property taxes with a silver bullet, hence it will continue to live and metastasize. The middle class that often takes out 24/7 payday loans online will take it on the chin in the unlikely event that the tax parade is permitted to march.

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