Pennsylvania Governor Tom Wolf displayed some serious short-sightedness when making his budget address last month. Pennsylvania literally sits atop an abundance of riches: the natural gas in the Marcellus Shale. Rather than leveraging that wealth in a way that would advantage all working Pennsylvanians, Governor Wolf wants to raise the severance tax on the national gas industry. Such a move would have a chilling effect on the state’s fastest-growing sector. Worse, it would drive jobs and workers out of Pennsylvania and into states that offer energy-boom upside without the high-tax downside.
We’re not talking about something that solely affects energy tycoons and “one percenters.” A tax hike on the natural gas industry would set in motion a major loss of integral, supply-chain jobs that help the Pennsylvania middle class thrive. It would also take money that’s now being spent locally and suck it into the black hole that is the state general fund, giving residents far less say over how, where, and why their dollars are spent.
Governor Wolf’s plan does nothing to address the state’s real problem, which springs from the ever-deepening pension crisis. Instead, it makes significant changes to the state tax structure in order to raise an outlandish $4.6 billion in new state spending. In addition to the severance tax that’s essentially a disincentive to extract natural gas in Pennsylvania, the plan includes income- and sales-tax increases that harm workers across every income level.
The Pennsylvania House of Representatives liked the governor’s proposal about as much as I do. The proposal failed by a 0-193 vote – not a single state lawmaker wanted to get behind this dud of a plan. As my co-authors and I discuss in Wealth of States, Pennsylvania sits on the precipice between failure and success. Many of its high-tax neighbors (like New Jersey and New York) are losing thousands of residents and millions of dollars to low-tax states, and while Pennsylvania’s losses are not as significant, they are still alarming (the state lost $8.3 billion in net adjusted gross income between 1992 and 2011, the most recent year for which Internal Revenue Service taxpayer data is available).
The 2015 Economic Outlook Rankings from the American Legislative Exchange Council show Pennsylvania with the 10th-worst outlook in the nation. That ranking fell eight spots from 2014 – and would surely slip even further if Wolf were to enact his tax plan. Plus, at a time when federal taxes are hitting Pennsylvanians quite hard, Governor Wolf wants to raise their state taxes, too.
Wolf’s reasoning is that he’s asking the wealthy, who can afford to pay higher taxes, to do so. Yet the reality is that nearly every working family in Pennsylvania would be affected by these increases. Under Wolf’s plan, the state sales tax rate would increase by 10 percent. That means that the tax on necessities like childcare and rent would go up to 6.6 percent, with no form of tax relief to offset it. (The Commonwealth Foundation rightly calls this a “cradle-to-the-grave tax increase,” as it would hike rates on everything from diapers to nursing home care to funeral services.)
Perhaps most alarming, at the heart of Wolf’s plan is a 20 percent hike in personal income taxes. That, combined with the proposed sales-tax increase, represents the largest tax increase in Pennsylvania state history. Jumps in the income tax rate affect nearly every working Pennsylvanian. The tax kicks in when an individual makes just $8,700 annually, or when a family makes more than $36,400. Workers across all sectors – from firefighters to teachers to Millennials trying to start a career in Pennsylvania – would be hurt by this ill-conceived hike. On average, the governor’s proposed tax increase would smack middle-class families of four with an additional $1,400 in state income tax owed.
Apparently eager to embrace a full suite of job-killing policies, Governor Wolf also wants to see an increase in the minimum wage, even though studies reveal that mandated wage boosts often have a negative impact on job creation. This is especially true at small businesses, which cannot afford to increase all salaries and must make hard decisions about layoffs. For the 763,000 small-business owners in Pennsylvania, both the minimum wage hike and the increase in the income tax represent a real threat to their success and survival.
There is so much opportunity in Pennsylvania, with its rich natural resources providing good jobs for thousands of working- and middle-class people. And there are real challenges to be met, like reforming the pension system. The governor will not leave a strong legacy by balancing his budget on the backs of working Pennsylvanians. It’s likely that come next election, voters will be ready to show this Wolf in wolf’s clothing the door.