Governor Outlines Spending Priorities, Income Tax Hike without Property Tax Relief

Posted on February 3, 2021 |

On the eve of his annual budget address, Gov. Tom Wolf outlined his budget priorities, including a proposal to increase the personal income tax to 4.49% without any reduction in property taxes in fund schools. He will restate the legislative agenda he released last week, which we reported on and can be found here. While early reports are silent on the topic, watch for a state police tax on ALL municipalities, details are not yet available. To watch PCN’s coverage of Wolf’s prerecorded budget address today at 11:30 a.m., click here. PCN coverage will begin at 11 a.m.

Personal Income Tax Increase: Wolf’s plan would increase the state personal income tax from 3.07% to 4.49%. In addition, he would expand special forgiveness tax credits to $15,000 for single filers, $30,000 for married filers, and $10,000 for each dependent and provide 100% state tax forgiveness for those at or near the threshold, with those just above these thresholds receiving a partial credit. Any family of 4 making combined $84,000 will see tax increases. The same family of 4 will pay no taxes if combined income is below $50,000. For more details on the personal income tax increase, click here.

Severance Tax on Natural Gas: The governor is proposing several billion in funding for the workforce development system to provide rapid re-employment assistance to workers impacted by the pandemic. This plan would be funded through a severance tax on natural gas extraction that the governor estimates will bring in $300 million a year. Once details on this are released, PSATS will closely review the proposal to ensure that it preserves the impact fee.

School Funding Reform: Wolf’s plan would allocate $1.3 billion in new funds for basic education and direct all existing state basic education funding into the Fair Funding Formula. This formula is based on enrollment and the ability of the community to fund local schools. The plan does not indicate if the new funding will come from the increase in the personal income tax or another source.

Other school funding reforms include:

Increasing the minimum annual salary for teachers from $18,500 to $45,000.
Increasing subsidized childcare rates with additional federal funds.
Increasing funding for special education, Head Start, and PreK.
Increasing accountability for scholarship organizations.
Redirecting Horse Racing Development Funds for scholarships for full-time education students in the Pennsylvania State System of Higher Education.

Comprehensive Charter School Law Reform: Wolf is proposing comprehensive Charter School Law reform that he estimates would save school districts $229 million annually. The proposal would revise the special education formula and establish a statewide cyber tuition rate of $9,500 per student per year.

For more details on the personal income tax increase and school reforms, click here.