A proposed budget deal could mean that the statewide sales tax rate would rise to 7.25 percent, but tack on the 2 percent rate that Philadelphia residents pay on cars, TVs and other consumer goods and that number jumps to 9.25 percent.
That tax rate would be among the highest in the nation — below Chicago’s 10.25 percent rate, but higher than many other big cities, including New York, Los Angeles, Phoenix and Miami.
GOP legislators in the General Assembly and Democratic Gov. Tom Wolf announced last week that they had reached a deal that would end a budget stalemate that has gone on since July.
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Under the framework reported by PennLive, the sales tax hike would be used to fund property tax reduction across the state, while taxes on gambling revenue would be diverted to shoring up the state's underfunded pension system. That would free up funds in the state’s general revenue stream for education funding.
But that framework could hit Philadelphians hard, because residents don’t tend to pay very high property taxes compared to suburban residents, so relief would have less of an impact.
Matt Gardner, executive director of the Washington D.C.-based Institute on Taxation and Economic Policy, said an increase in the state’s sales tax would hit low-income residents hard, in a state where poor people already devote a large chunk of their income to taxes. His organization, which gets much of its funding from left-leaning foundations, compiles reports on which states have tax systems that are favorable to the poor.
“We’ve surveyed this for a quarter century now, and we routinely find that Pennsylvania has one of the most unfair tax systems in the nation,” Gardner said.
What Gardner’s group measures is whether a state has a regressive or progressive tax structure. In progressive systems, taxes tend to rise with income.
Pennsylvania’s system is considered regressive because its income tax is the same for all income groups, and because it tends to rely on property taxes and sales taxes for revenue, Gardner said.
According to the group’s most recent analysis, the poorest people in Pennsylvania, those who make less than $20,000 per year, devote about 12 percent of their income to all taxes, and 5.8 percent to sales taxes. The state's wealthiest one percent, who make more than $426,000, devote about 4 percent of their earnings to state taxes, and 0.6 percent to sales taxes, the group said.
Gardner is skeptical that a sales tax hike would have a big benefit for low-income people.
“A dollar for dollar swap is generally going to be a bad deal for low-income families,” he said.
According to the Tax Foundation, Philadelphia would be in a three-way tie for the 4th highest tax rate among the nation’s largest cities. Seattle’s tax rate sits at 9.6 percent, while Oakland, California’s rate is 9.5 percent.
Lawmakers are expected to vote on the deal later this month.