Tax Policy and the Race for the Governor’s Mansion: Pennsylvania Edition

Voters in 36 states will be choosing governors this November. Over the next several months, the Tax Justice Blog will be highlighting 2014 gubernatorial races where taxes are proving to be a key issue. Today’s post is about the race for Governor in Pennsylvania.

Pennsylvania Gov. Tom Corbett (R) is fighting for his political life in the Keystone State, where he has trailed his challenger, businessman Tom Wolf (D), by double digits for much of his reelection campaign. With election only months away, Corbett has sought to portray Wolf as a tax-and-spend hypocrite – eliciting a sharp response from Wolf and pushing tax issues to the forefront of the race.

There are many competing theories for Corbett’s unpopularity with voters, from the fallout over the Penn State abuse controversy to his overly conservative views on social issues, but his tax and spending policies have alienated liberals and conservatives alike. Progressives expressed outraged when he cut more than $1billion from education budgets at the beginning of his term – disproportionately harming districts with large numbers of low-income students – while anti-tax conservatives were equally dismayed by his transportation plan, which raised the gas tax and motorists fees to fund roads and bridges. Wolf has also assailed Corbett’s gas tax increase (though critics point out Wolf has also praised the bipartisan transportation plan of which the tax is a key component.)

Earlier this month, Wolf released the vague outlines of his plan to make the state’s tax system more progressive, while still providing middle-class Pennsylvanians a tax break. Pennsylvania has a flat income tax rate of 3.07 percent and the Pennsylvania Supreme Court has ruled that the constitution bars the adoption of a graduated income tax. Wolf’s plan would raise the income tax rate but exempt income below a certain level. In an interview, Wolf gave a hypothetical scenario with a 5 percent income tax rate and a uniform exemption of the first $30,000 of income. An individual making $40,000 could expect a tax break of $421, while an individual making $250,000 would pay an additional $4,825. Wolf plans to use the extra revenue generated by his tax reform to increase the level of state aid to public schools and provide Pennsylvanians with property tax relief. It is uncertain if his plan will survive legal and financial scrutiny.

Because of the regressive nature of the state income tax, Pennsylvanians have one of the highest property tax rates in the nation. Wolf wants to see the state’s share of local education spending increase to 50 percent — currently, the state foots a third of the bill for schools, while property taxes cover 40 percent. Corbett argues that local jurisdictions have raised property taxes to cover the increasing cost of pensions rather than the schools themselves, and that an increase in the income tax is not necessary. Corbett has also accused Wolf of scheming in increase taxes on the middle class, rather than lower them.

Another flashpoint between the two candidates is a potential severance tax on the extraction of oil and natural gas – a potent issue in Pennsylvania, where the economy has been buttressed in recent years by hydraulic fracking along the Marcellus Shale. Wolf has campaigned on a 5 percent severance tax to fund education, arguing that the tax would be passed onto consumers in other states, rather than Pennsylvania residents. Corbett has refused to endorse a severance tax, despite calls for such a tax from some members of his own party. In 2012, Corbett enacted an impact fee on oil and gas companies that has since raised $630 million, which critics allege is much less revenue than a severance tax would raise. Recently, Corbett has backed off of his staunch opposition to a severance tax, given the state’s $1 billion budget shortfall, though he insists that any new taxes be tied to efforts to reduce the cost of pensions for educators and state employees.