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State tax hike moves fraction closer

By Brad Bumsted, STATE CAPITOL REPORTER
Tuesday, December 9, 2003
A flat-rate state
Pennsylvania is among 43 states that tax income. It is one of five states with a flat-rate income tax, according to the Tax Foundation, a Washington, D.C., nonprofit research group. The flat-rate states are:

  • Massachusetts: 5.3 percent of personal income.

  • Colorado: 4.3 percent of federal taxable income.

  • Indiana: 3.4 percent of federal gross income with modifications.

  • Illinois: 3.1 percent of federal gross income with modifications.

  • Pennsylvania: 2.8 percent of personal income.

    Of the other 38 states with an income tax of some sort, Tennessee and New Hampshire tax only unearned income, not wages.

    Thirty-six states have varying tax rates depending on income levels. Montana's, for example, starts at 2 percent for the lowest-income individuals and rises to 11 percent for those making $76,200 or more a year.

    About the writer

    Brad Bumsted is a state Capitol reporter for the Tribune-Review. He can be contacted via e-mail or at 717-787-1405.

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    • HARRISBURG -- It looks more likely that an increase in the state personal income tax will be part of the final deal that paves the way for breaking Pennsylvania's five-month budget impasse.

    The 2.8 percent income tax could increase to as much as 2.99 percent, based on closed-door negotiations among Senate leaders of both parties on Monday. Until last week, Senate Republicans balked at any hike in the income tax.

    Senate leaders could include a new state tax on cell phones as part of their package. The tax could be a 5 percent gross receipts tax on cell calls.

    There's a "framework for a potential budget agreement," said Erik Arneson, chief of staff for Senate Majority Leader David "Chip" Brightbill, a Lebanon County Republican.

    There is no final agreement, but both sides reported progress. Negotiations resume today.

    A final agreement and Senate vote could come next week. Senate Republican and Democratic leaders yesterday began trying to sell the framework to rank-and-file senators, House leaders and Gov. Ed Rendell.

    Rendell is "cautiously optimistic that the progress being reported will lead to an end to the long-standing budget impasse," said Chuck Ardo, a Rendell spokesman. Rendell last March asked the Legislature for a hike in the income tax to 3.75 percent.

    At stake, in addition to higher taxes, is the state's basic education subsidy for school districts. Approximately $4 billion has remained in limbo since July 1.

    "The thing pushing us here is the need to fund public education and putting back some monies in areas where there have been significant cuts in services," said Sen. Jack Wagner, a Democrat from Beechview, Allegheny County.

    The highlights emerging from negotiations:

  • Senate Republicans are looking at an income tax rate of 2.95 percent to 2.99 percent. Some Democrats would like to see a higher rate, but there's a general belief that a rate under 3 percent would be an easier sell to rank-and-file senators.

  • There's common ground on restoring many of the cuts contained in the budget the Legislature passed and Rendell signed in March. More money could be added for hospitals, drug and alcohol programs, and libraries. Few would get 100 percent of what they received last year.

  • More mass transit money would be included in the final mix. Transit money had been cut by 6 percent in the March budget.

  • There still is no agreement on how much money would go for early childhood education programs sought by Rendell. That depends on the income tax rate agreed on by leaders. Rendell is seeking $250 million for the programs, but negotiators realize few could be launched in the budget year that ends June 30.

  • Senate Republicans are considering making a commitment to allocate a certain amount of money for those programs in the 2004-05 state budget -- the next one -- that Rendell will unveil in February.

  • A vote on legalizing slot machines at racetracks and cutting property taxes might not come until next year. That's a potential sticking point because some lawmakers want a property tax cut right away to soften the blow of an income tax increase. Still, lawmakers don't want to break for Christmas without approving money for public schools.

  • A statewide tax on alcoholic drinks remains in play, depending on whether the state needs more revenue. The state's 6 percent sales tax could be extended to alcoholic beverages sold with meals in restaurants and on drinks sold in bars.

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