Pennsylvania Among ‘Terrible 10’ Most Regressive Tax States

By Chris Lilienthal, Third and State

Working families in Pennsylvania pay a far higher share of their income in state and local taxes than the state’s wealthiest earners, according to a new study by the Institute on Taxation and Economic Policy (ITEP).

Pennsylvania’s tax system scored so poorly that it made the list of the “Terrible 10” most regressive tax states in the nation.

The Pennsylvania Budget and Policy Center (PBPC) co-released the report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, with ITEP. PBPC Director Sharon Ward made the point in a press release that “No one would deliberately design a tax system where low-income working families pay the greatest share of their income in taxes, but that is exactly the type of upside-down tax system we have in Pennsylvania.”

Middle-income families in Pennsylvania pay more than double the share of their income in taxes than the very wealthiest Pennsylvanians, while low-income families pay nearly three times as much as top earners, the report found. Get more details on the report, including a Pennsylvania fact sheet, here.

PA State & Local Taxes: Shares of family income for non-elderly taxpayers

The report should bury once and for all the myth of the makers vs. the takers. Low-income families in Pennsylvania are paying much more of their income in state and local taxes than the top 1%.

Families who qualify for state personal income tax forgiveness still pay large shares of their earnings in sales, local income and property taxes, the report found. At the same time, wealthy taxpayers benefit greatly from tax laws that allow them to write off property and income taxes from their federal taxes. This is, at best, a modest benefit for middle-class families and no benefit to very low-income earners.

Pennsylvania’s flat income tax contributes to its regressive tax ranking. Without a graduated tax rate that rise on more affluent earners, the state’s income tax does little to offset more regressive sales and property taxes. 

That’s why Pennsylvania should amend the state Constitution to enact a graduated personal income tax. Even without a constitutional change, the state could set a higher income tax rate on investment income, which goes primarily to wealthy Pennsylvanians, without raising the rate on wage earners.

The Reports of Unions’ Death Are Greatly Exaggerated

By Stephen Herzenberg, Third and State

There’s a good deal of crowing in conservative circles this week about the new 2012 numbers on union membership. Union membership nationally fell by about 400,000, to 14.4 million. Union membership in Pennsylvania declined 45,000, including 59,000 in the private sector.

Of course, for anyone who cares about, say, the American Dream, democracy, and rising living standards, the newest numbers are bad news. A simple chart put together by the Center for American Progress shows that unions are vital to the middle class. As unions have weakened, so has the share of income going to middle-income workers – and the gap between the 1% and the 99% has mushroomed.

As this blog has noted, inequality undermines not only economic opportunity, but it also slows economic growth and makes our democracy less responsive to typical families and the public good (and too responsive to rich special interests).

One silver lining in the new numbers is the great variation that exists across states. Unions are growing in some places. Another silver lining is that the weaker unions get, the more evidence we get that this is a bad thing. Evidence such as the fact that the top 1% of the population took home 93% of the increase in income in the United States in the last year for which we have data. And evidence such as the skills shortage in U.S. manufacturing: surprise, surprise, if you pay workers poorly and don’t invest in them, you can’t attract and retain the factory talent you need.

Fifteen years ago, we outlined why America needs “new unions for a new economy” – and noted that we couldn’t see how to restore widely shared prosperity without a revival of unionism. The evidence for our position grows with each day.

But beneath the overall numbers, even in Pennsylvania and even in manufacturing, there are signs of revival. Take, for example, a unionized Schott Glass plant near Scranton, which is pioneering a new labor-management apprenticeship program.

To paraphrase Mark Twain, the reports of unions’ death are greatly exaggerated.

Post-Labor Day Thoughts: Middle Class Can’t Afford Another Lost Decade

By Mark Price, Third and State

Labor Day 2012 is behind us, but the challenges confronting the middle class are not.

As we do each year around this time, the Keystone Research Center has released the State of Working Pennsylvania. My co-author, a.k.a El Jefe, had a Labor Day op-ed in the Harrisburg Patriot-News where he laid out the theme of this year’s report – namely, that the middle class in Pennsylvania and the U.S. cannot afford another lost decade.

The next three figures lay out the major elements of this year’s State of Working Pennsylvania: employment growth over the last decade has been weak (Figure 1.10); as a result, incomes over the last decade declined (Figure 1.11); and in the first year of the recovery and of the new decade, income inequality resumed its growth as the top 1% increased their share of all income (Figure 5.1). 

With job growth weak and many policymakers advocating that we lay off more teachers and continue to put off needed investments in infrastructure, we are very concerned that working and middle-class families may end the next decade with less income from work than they started with in 2010.

Abandoning Pennsylvanians

Governor Tom Corbett unveiled a 2012-13 state budget Tuesday that abandons middle-class Pennsylvanians and our most vulnerable citizens.

The Pennsylvania Budget and Policy Center has a full analysis of the Governor’s proposal. Here’s the quick version.

With this budget, the Governor continues to turn his back on middle-class families who rely on good schools and affordable college tuition.

Help for the most vulnerable Pennsylvanians is reduced or eliminated. Tens of thousands of families and children have already seen health and other services terminated. This approach is not about finding efficiencies or cutting waste but rather cutting off help to people who have been hit hardest by the recession.

And while there is a call for greater accountability for every dollar in spending, businesses are let off the hook based on claims that they will create jobs in exchange for tax cuts that now total more than $1 billion.

This is not the path to a stronger economy or a better Pennsylvania.

We’ll have more to say in the weeks ahead. For now, you can learn more by reading our analysis.

What is Pat Toomey Doing? Inequality and America’s Future

A blog post by Stephen Herzenberg, originally published at Third and State.

Let me connect three dots for you. Draw your own conclusions about the impact of Pennsylvania Senator Pat Toomey’s proposal in the super committee to reduce the federal deficit.

Dot Number 1 – The American middle class is shrinking: The New York Times reports this morning that the middle class is shrinking in America – based on where people live.  In 2007, the latest year studied, 44% of families lived in middle-income neighborhoods, down from 65 percent of families in 1970. A third of families lived in very high-income or poor neighborhoods now, up from just 15 percent of families in 1970. The case example used to illustrate this national trend – the Philadelphia metropolitan area.

Dot Number 2Toomey proposes to increase after-tax inequality further: In the super committee, Congressional Republicans, led by Senator Pat Toomey, have advanced a plan that they say would raise revenues by closing tax loopholes and eliminating tax breaks while cutting spending by $1.2 trillion. But a closer look shows that, of $3.5 trillion raised by the elimination of loopholes and tax breaks, $3.2 trillion would lower tax rates for the wealthiest. The plan would lower taxes at the top a lot more than simple extension of the Bush tax cuts for the very rich. So the impact of Senator Toomey’s proposal would be to increase economic inequality after taxes: affluent families would pay less in taxes and the middle class and the poor would face cuts in Social Security, Medicare, and other social programs.

Dot Number 3High inequality undercuts core American values (opportunity, democracy) and weakens our economy: High levels of economic inequality – such as now exist in the United States – undermine intergenerational mobility (also known as “the American Dream”). (For evidence, see the links in this earlier blog post on inequality or this one or see this online video by Richard Wilkinson.) Such inequality also contributes to the erosion of political democracy – shifting the country further from one person, one vote towards one dollar, one vote. And, third, high levels of inequality undermine economic and productivity growth. Let’s process that again: the end of the American Dream; the erosion of democracy (wasn’t America – and Pennsylvania – the birthplace of democracy?); and a weaker economy. Three strikes and you’re out.

Question Number 1Why? On a day when a national newspaper is using Philadelphia to illustrate the erosion of the middle class, why is Senator Toomey championing ideas that threaten the most cherished American values (opportunity, democracy) and the country’s future living standards? You’d have to ask him.

The Middle Class ‘Under Attack’

A blog post from Mark Price, originally published on Third and State.

At the Keystone Research Center, we have been chronicling for years the forces that are putting a tighter and tighter squeeze on middle-class Pennsylvanians.

Last week, we released a new report in partnership with the national policy center Demos that takes the temperature of the state’s middle class in the wake of the Great Recession. I’m sorry to say, once again, the patient is not well.

The state’s annual unemployment rate is the highest it has been in nearly three decades and the cost of going to college is on the rise.

According to the report, times are particularly tough for Pennsylvania’s young people, with state budget cuts to 18% of public university funding and a 7.5% tuition hike in Pennsylvania’s State System of Higher Education. Pennsylvania’s young people already bear the seventh highest rate of student debt in the nation – at approximately $28,000 on average.<!–break–>

A few more quick facts from the report:

  • Pennsylvania’s unemployment rate in 2010 (8.7%) was the highest rate in the state in 30 years.
  • At $10,761 for 2009-10, in-state tuition at Pennsylvania’s colleges and universities is well above the national average of $6,829.
  • Nearly three out of four of college graduates in Pennsylvania entered the labor force with student debt in 2009, and their average debt-$27,066-was the 7th highest in the nation.

Since the 1980s, the middle class has been under attack in Pennsylvania, and now we’re seeing the next generation being forced onto the downward economic escalator. That’s troubling for a number of reasons, but not least of all because it comes at the expense of our single greatest invention. As Bob Herbert, a former New York Times columnist and now a senior fellow at Demos, put it:

The middle class is more than an income bracket – it’s a promise, that if you work hard and play by the rules, you’ll earn enough to achieve a reasonable level of comfort and security, enough at the very least to support yourself, raise a family and enjoy the fruits of truly free society. That was a real 20th century invention – a novel possibility for regular people to enjoy that degree of freedom.

The middle class didn’t create itself, and its unraveling didn’t happen by accident. It reflects public policies that have squeezed the middle class and sent inequality soaring. Again, Herbert notes:

In some cases, we just failed to act – we let the minimum wage continue to lose its earning power, we let jobs be shipped overseas and did nothing to invest in new industries. We let the right to form a union be relentlessly attacked to the point where it’s now a real David and Goliath battle to unionize a company.

In other cases, we took action, but in the wrong direction, such as irresponsibly cutting taxes, which made it all but impossible to continue to invest in the types of public structures – our roads, schools, libraries, for example – that help all of us reach our full potential. In the four recessions since 1980, we’ve seen cuts to education, health care, infrastructure, and on and on. Tuition at public universities has tripled since 1980.

In the years leading up to the Great Recession, the middle class and the aspiring middle class had already lost tremendous ground. Now the ongoing jobs crisis – with nearly 5 workers for every 1 job that is currently available – and the cuts in vital state services have only deepened the pain and increased the emotional distress.

Before you get too depressed, there is good reason to have hope for the state’s long-term prospects. Pennsylvania has weathered the recession better than many other states, and we continue to have higher union membership rates than the national average, which provides a strong basis for improving worker rights and employer responsibilities for all workers.

The key will be whether our state and federal policymakers have the good sense to enact effective policies that allow Pennsylvania workers to regain a permanent place in the middle class.