Millionaire Tax Didn’t Chase the Rich From Jersey, So Why Not a Higher Tax Rate on Pa.’s Top Earner

A blog post from Stephen Herzenberg, originally published on Third and State.

Anti-tax advocates maintain that higher tax rates on the wealthy lead to millionaire flight. But a study of a 2004 “millionaire tax” in New Jersey shows that, in fact, the rich don’t move to avoid higher taxes.

The new study was written by sociologists at Stanford and Princeton and published in The National Tax Journal. Economist Robert Frank reported on it in The Wall Street Journal, writing that the study “provides some of the most detailed evidence yet that so-called millionaire taxes have little effect on the movements of millionaires as a whole.”

The 2004 New Jersey tax increased the rate on those earning $500,000 or more from 6.37% to 8.97%. After the change, high-earners not subject to the tax (with income between $200,000 and $500,000) migrated out of state at the same rate as those who were subject to the tax. “In summary, the new tax did not appreciably increase out-migration,” the study concluded.

Even before this study, we knew that Pennsylvania badly needs to raise revenue to maintain critical services and investments in the future. We also knew that the top 5% of Pennsylvania earners pay an overall state and local tax rate that is about one-half that of the lowest-income fifth of taxpayers (see Institute for Taxation and Economic Policy data for Pennsylvania).

Raising the Pennsylvania tax rate on “unearned income” (including capital gains, dividends, and other non-wage income) by just 2 percentage points – from its current 3.07% to 5.07% – would raise $635 million. The rate on earned income could remain the same at 3.07%. The increase in the unearned income rate would mostly impact top earners in Pennsylvania but still leave the tax rate on unearned income far below the tax rates in New Jersey and most other neighboring states.

Third and State This Week: Closing Loopholes, a Flawed School Vouchers Plan and More

This week, we blogged about closing tax loopholes on Tax Day, a deeply flawed school vouchers plan in the state Senate, Governor Corbett’s claims about property taxes in Texas, and much more.

IN CASE YOU MISSED IT:

  • On education, Steve Herzenberg wrote that despite amendments made to the Senate school voucher bill, it remains a deeply flawed and expensive new program, with little to no accountability.
  • On state budget and taxes, Sharon Ward shared her Tax Day op-ed in the Pittsburgh Post-Gazette, where she suggests that instead of grumbling about taxes this year, we start the work of closing tax loopholes that disproportionately benefit the well-connected few. Meanwhile, Chris Lilienthal passed on Tax Day resources from the Center on Budget and Policy Priorities and Demos’ Taxes Matter Project to provide a fresh perspective on how we think about taxes. And Michael Wood posted a video clip from a Monday press conference, hosted by Common Cause Pennsylvania, where he and good government advocates called on lawmakers to close tax loopholes before cutting schools, colleges and services for vulnerable Pennsylvanians.
  • Finally, on the Marcellus Shale, Michael Wood sets the record straight on what taxes Texas drillers do and don’t pay, in response to recent comments by Governor Corbett.

More blog posts next week. Keep us bookmarked and join the conversation!

Yes, Governor, Texas Levies Property Taxes

A blog post from Michael Wood, originally published on Third and State.

The Patriot-News reports that Governor Corbett, speaking to a meeting of township commissioners Monday, said: “Texas doesn’t have a personal income tax. Texas doesn’t have a property tax. So when we’re talking about taxes, don’t you think we ought to compare apples to apples and oranges to oranges?”

Let me set the record straight: Texas levies property taxes – $40 billion worth in 2009, according to the Texas Comptroller. It is their largest state or local tax – by a lot. The state’s sales tax brings in only about half of the amount it takes in from local property taxes.

I hope the Governor merely misspoke, as he could have meant to say Texas levies no personal income tax (true) or corporate net income tax (also true – but the Lone Star State levies a margins tax on all businesses, and they do it on a combined reporting basis).

Unlike in Pennsylvania, Texas levies property taxes on all property unless officially exempted by law. This includes personal property, business inventories, non-business vehicles, and oil and gas property. Oil and gas assets (which include oil and gas reserves that haven’t been pulled out of the earth) account for 5% of all taxable property in Texas. This equates with more than $2 billion in property tax payments in 2009.

Pennsylvania levies a corporate net income tax, which very few oil and gas corporations pay, in part because of federal tax incentives that lower or erase their state and federal tax bills. Tax data from 2008 showed that 85% of oil and gas corporations that filed corporate net income tax returns paid $0. Many other drillers are structured as limited liability companies or limited partnerships allowing them to pay the much lower personal income tax rate on profits.

In total, oil and gas firms in Pennsylvania paid $38.8 million in 2008 business taxes – including corporate net income, personal income and capital stock and franchise taxes. Patriot-News columnist Heather Long updated some of these figures in a weekend piece. Unlike in Texas, drillers in Pennsylvania paid no local property taxes on gas reserves and no state drilling taxes.

No matter what the Governor says or meant to say, drillers pay much less in taxes in Pennsylvania than they do in Texas.

Despite Changes, Senate Voucher Plan Deeply Flawed

A blog post from Stephen Herzenberg, originally published on Third and State.

Next week, the Pennsylvania Senate may take up an amended plan to create the largest-in-the nation private school vouchers program.

While Senate Bill 1 was amended last week, the bill remains deeply flawed.

Despite capping part of the cost, the program will be expensive, with costs approaching half a billion dollars within three years.

The amended bill places a $250 million cap on the cost of vouchers going to low-income students outside the attendance boundaries of the 144 initially targeted (“lowest-achieving”) schools. Even with this cap, the total cost (including the cost of vouchers for students within the targeted areas) would range from $400 million to $500 million in Year 3 and beyond. The biggest uncertainty in this estimate is the number of low-income public-school students within the boundaries of the targeted schools who will choose to transition to private schools.

Most of the $250 million set aside for vouchers to students outside the 144 targeted schools would likely go to low-income students already enrolled in private schools.

The Senate Democratic Appropriations Committee estimates that between 52,500 and 65,000 low-income students already enrolled in private schools would be eligible for vouchers – which would cost $320 million to $420 million. These students and their parents will be particularly motivated to seek out vouchers, and their schools will be motivated to help them. Since the state currently pays nothing towards the education of these students, their vouchers would amount to an entirely new cost to the state. Providing these vouchers would not reduce the demands on the public school system or the cost of serving existing students.

While an amendment to the bill would require private schools to assess voucher student progress in grades, 3, 5, 8, and 11, this provision provides the appearance, but not the substance, of educational accountability.

Private schools would have the option of administering their own customized assessment or picking from a list of at least eight national achievement tests. Parents would be unable to make apples-to-apples comparisons of student progress to evaluate school quality. Researchers would also be unable to rigorously compare the progress of voucher students and comparable public school students. In sum, this provision amounts to “faux accountability.”

Overall, the changes to SB 1 do not address the flaws of the bill:

  • It remains an expensive new program that would have little impact in nearly the 60% of Pennsylvania counties that have very few private schools.
  • It diverts money from the most financially strapped public schools at a time they can ill afford it.
  • The bill still does not establish meaningful financial or educational accountability that goes beyond the lack of accountability in the state’s existing EITC voucher program. (On the lack of accountability in the EITC program, see Keystone Research Center’s recent report on this topic.)
  • Vouchers and competition are not the key to educational achievement. U.S. research shows that vouchers do not improve educational achievement (for details, see Appendix A of the KRC report). Additional international rankings of student achievement show that the highest-performing countries are distinguished not by reliance on vouchers but rather by (a) adequate and equitable funding for students in all geographical areas, (b) significant investment in early childhood education, and (c) well developed systems of mentoring and peer learning that help all students become more effective in the classroom.

One of the reasons that the achievement of Pennsylvania school students has improved substantially in the last decade is because the state has increased state support of the lowest-income districts as well as investment in evidence-based programs such as early childhood education. That is the recipe for continued progress going forward.

‘Close the Tax Loopholes’ Day

Today is Tax Day, but perhaps we should rename it “Close the Tax Loopholes Day.” That is the message delivered by Sharon Ward, Director of the Pennsylvania Budget and Policy Center, in an op-ed in Friday’s edition of The Pittsburgh Post Gazette. Here’s a highlight:

Many Pennsylvanians will grumble this week as they race to file their tax returns on time. Others will be laughing all the way to the bank.

Take General Electric, the nation’s largest corporation. You would expect G.E. to have a pretty sizeable tax bill, right? Think again.

Despite worldwide profits of $14.2 billion (including $5.1 billion in U.S. profits), G.E. owed Uncle Sam nothing in federal taxes. In fact, the company got $3.2 billion back in tax benefits.

At a time when Washington is cutting a wide array of critical services – from food for nursing women and infants to heating assistance for seniors – policy makers continue to look the other way when it comes to tax loopholes.

These loopholes allow corporations to shift foreign profits into accounts in Ireland, the Netherlands and Bermuda to avoid U.S. corporate taxes. These gimmicks are so well known they have nicknames – the Double Irish and the Dutch Sandwich – and they have a huge cost, as much as $90 billion a year.

The giveaways are alive and well in Pennsylvania’s antiquated tax system, too.

If your family earned more than $33,000 this year, congratulations! You paid more in income taxes than 85 percent of Pennsylvania corporations. Seventy-four percent of Pennsylvania corporations did not pay one dime in income taxes.

Read the full op-ed.

In Case You Missed It: Third and State Blog for Week of April 11, 2011

This week, we blogged about  adultBasic and (Not So) Special Care, a lack of accountability in the Educational Improvement Tax Credit Program, a fact check on claims about gas drilling in West Virginia and Pennsylvania, and much more.

IN CASE YOU MISSED IT:

  • On health care, Sharon Ward writes that few adultBasic enrollees who lost their health care last month are enrolling in the Blues’ Special Care Program.
  • On education, Steve Herzenberg explains that we don’t know much about the 38,000 students who received taxpayer-funded scholarships in 2009-10 to attend private and religious schools under the state’s Educational Improvement Tax Credit (EITC)
  • On the state budget, Kate Atkins (in her Third and State debut) shares the story of a Delaware County man who pulled his life together thanks to a state-funded program that might be defunded next year.
  • On the Marcellus Shale, Mike Wood has a fact check on claims made by Acting Revenue Secretary Dan Meuser on gas drilling in West Virginia, with a drilling tax, and Pennsylvania, without one. 
  • Finally, in this week’s Friday Funny, Chris Lilienthal writes that the City of Altoona has gone “Pom Wonderful” – selling naming rights to the city to documentary filmmaker Morgan Spurlock to promote his upcoming film about product placement.

More blog posts next week. Keep us bookmarked and join the conversation!

Fact Checking Claims About Pennsylvania and West Virginia Drilling

(Dan Meuser’s pants are on fire. – promoted by John Morgan)

Pennsylvania's Acting Revenue Secretary Dan Meuser told lawmakers in a budget hearing last month that only 20 Marcellus Shale gas wells have been drilled in West Virginia since that state enacted a drilling tax, while Pennsylvania has had more than 600 such wells drilled.

As we explained in a recent policy brief, that’s not quite accurate.

According to World Oil Online, West Virginia led the nation in new gas wells in 2010, along with Texas and Arkansas — all of which have drilling taxes. Pennsylvania, without a drilling tax, came in sixth, with 833 new wells.

West Virginia has had significant activity in the Marcellus Shale in particular. As of October 2010, West Virginia had 1,217 Marcellus Shale wells completed, with 862 new wells permitted.

In 2009, Pennsylvania and West Virginia were running neck in neck in total gas production. That same year, West Virginia also collected $85 million in drilling tax revenue and another $97 million in property taxes, while Pennsylvania collected neither.

Click here to view the policy brief, including a table showing the change in gas wells drilled from 2009 to 2010.

Not So Special Care

( – promoted by John Morgan)

A blog post from Sharon Ward, originally published on Third and State.

It has been just about six weeks since the adultBasic program came to an end, leaving 42,000 Pennsylvanians without affordable health insurance coverage.  Governor Corbett ended the program, claiming that the state, and the Blues, were too poor to continue funding it.

Never mind that the Governor took $220 million in health care money to create a new business loan fund, or that Highmark just keeps raking in the dough. (More about that later.)

AdultBasic enrollees were encouraged to sign up for Special Care – a Blues product most notable for its winning combination of expensive premiums and lousy coverage – through two letters sent to recipients and in numerous phone calls with the soon-to-be uninsured. Their new friends, the Blues, would be only too happy to accommodate the newly uninsured.

So how’s that working out? Turns out, not so well.

In a press conference with Mayor Michael Nutter and Senators Michael Stack and Larry Farnese, Auditor General Jack Wagner released data on Special Care enrollment. It turns out that only 8,000 of 37,000 adultBasic enrollees (about 21%) have signed up with the Blues.

The enrollment varies widely among the four plans. Highmark, which had the largest adultBasic enrollment, 21,000 individuals, had 19% sign up. Independence Blue Cross’ numbers are abysmal – only 6.7% of the 12,000 eligible individuals have signed up for Special Care.
adultBasic Customers Enrolling in Special Care
Get a PDF of this chart

So what happened to the other 30,000? Some may be eligible for Medical Assistance, and our good friends at Community Legal Services pushed hard to ensure that the Departments of Public Welfare and Insurance took affirmative action to find and enroll them.

But the rest may simply have fallen through the cracks.

On May 3, the window for adultBasic enrollees closes, and the Blues get to reduce income eligibility and reinstate pre-existing condition exclusions. The insurance companies are back in charge.

Growing the Revenue Pie

On Wednesday, educators, students, advocates for women and domestic violence victims, faith groups and others delivered pies to all 253 of our state lawmakers in Harrisburg. Yes, pies.

The event, organized by the Better Choices for Pennsylvania Coalition, brought this group together to deliver a simple message to lawmakers: Grow the state’s revenue pie by closing tax loopholes and ending special interest tax breaks. A cuts-only budget is going to hurt middle-class families and drive up local property taxes.

Below is a 4-minute video highlighting the best of the speakers to join us for the Capitol press conference. Take a few minutes to watch it – then check out the Better Choices web site to learn how you can help send a message to your lawmakers about growing the revenue pie.

In Case You Missed It: Third and State Blog for Week of April 4, 2011

This week, we blogged about oppressive regimes and income inequality, what the top CEOs are making these days and calls this week for state lawmakers to grow the revenue pie.

IN CASE YOU MISSED IT:

  • On wages, Stephen Herzenberg wrote that median CEO pay in 2010 rose 27%, compared to a 2.1% increase in the compensation of workers in private industry. And in light of recent discussion about public-sector pay, he pointed out that the two highest-paid CEOs in Pennsylvania earn a lot more than the 100 top-paid public-sector workers.
  • On income inequality, Chris Lilienthal shared highlights from a Vanity Fair article by Nobel Laureate Joseph Stiglitz on income inequality in the U.S. Stiglitz writes that, in light of recent turmoil and protests in Egypt, Libya and other oppressive regimes, growing income inequality in the U.S. should be a concern for the rich as much as the rest of us.
  • Finally, Sharon Ward posted a short video highlighting an event this week in the state Capitol that brought college students, advocates for domestic violence victims, educators and more out to deliver pie to state lawmakers.

More blog posts next week. Keep us bookmarked and join the conversation!