HARRISBURG, Pa. (WHTM) – T-A-X.
It’s a three-letter word that evokes four-letter responses.
But do Pennsylvanians pay more taxes – or less – than the 49 other states? What exactly is the tax burden in the commonwealth?
Good questions – and the Harrisburg-based Pennsylvania Business Council wanted answers, so it commissioned a report from the DC-based non-partisan Tax Foundation.
The recently released report tries to make sense of how Pennsylvania collects dollars and cents.
There is good news.
In Pennsylvania, there is no sales tax on food, clothing and prescription drugs.
When it comes to beer taxes, PA is the 45th lowest in the nation.
The personal income tax is 3.07 percent, second lowest of states with income taxes. Several states do not have personal income taxes.
But that good news is dampened, says Nicole Kaeding, who researched the report. She says most states don’t tax income at the local level, but Pennsylvania does. In fact, with more than 2,500 municipalities and 500 school districts, the commonwealth has more taxing authorities than any other state.
“What looks like a low rate at the state level is much higher when you add local taxes to it,” Kaeding said.
In overall tax burden, Pennsylvania is the 15th worst in the U.S., according to the report. Sure, its taxes are not as onerous as neighbors New York and New Jersey, but Kaeding says peer states like Texas, North Carolina, Virginia and Florida are faring much better than our state.
And, according to the report, the commonwealth is downright abysmal with its 9.9 percent corporate net income tax.
“Almost 10 percent,” said Gene Barr, president of the Pennsylvania Chamber of Business and Industry. “When you combine that with the U.S. rate which is highest in the world, arguably Pennsylvania has the highest effective corporate taxes in the world.”
A red flag, Barr says, for businesses considering Pennsylvania.
Kaeding said that Pennsylvania’s tax structure was created when the state economy was mostly goods producing. It’s now mostly service producing, but many of those services aren’t captured by taxes. Kaeding recommends broadening the sales tax base to include things like attorneys and accountants and veterinarians and dry cleaning. It would be more fair, she says, and may allow the overall six-percent rate to be lowered, but she acknowledges it would likely be unpopular.
“Unfortunately, that is the best way to structure the tax code for everyone in the state, and the fact that they’ve not been taxed already they’ve had a benefit that other industries have not had,” Kaeding said.
But Barr points out it’s not that simple. With taxes, there are always unintended consequences
“All of a sudden it maybe becomes a little more attractive to utilize an accountant or attorney in another state,” Barr said.
Driving to that other state will cost you, though. At more than 50 cents per gallon, Pennsylvania has the highest gasoline tax in the country.
If you want a deeper dive into the tax numbers, the Pennsylvania Illustrated report is online.
But if all this tax talk is annoying you, have a beer and enjoy it knowing that tax-wise, it’s a pretty good deal.