PA Lawmakers Should Act Now to Lift Middle-Class Income Before and After Taxes

Download the KRC fact sheet on Pennsylvania Top 1% Incomes in 2014

Download the CBPP fact sheet on Pennsylvania Incomes in 2015

Download the CBPP report “How State Tax Policies Can Stop Increasing Inequality and Start Reducing It”

HARRISBURG – New data from the Keystone Research Center (KRC) reveal that the average income of the top 1% of Pennsylvania taxpayers rose 9% from 2013 to 2014. With an average income in 2014 of $1,175,600, incomes for the highest earners are up 19% (an increase of $189,800) from their 2009 levels.

A separate report released by the Center on Budget and Policy Priorities examines more recent income data available for low- and high-income Pennsylvania families and finds that the richest 5% of households have average incomes more than 13 times as large as the bottom 20% of households and just over 8 times as large as the middle 20% of households. Pennsylvania ranks in the middle of states (23rd) for income inequality.

“These two new pieces of Pennsylvania data paint an increasingly disturbing picture of inequality in the Commonwealth,” said KRC economist Dr. Mark Price. “When it comes to their incomes, families at the top and the vast majority of Pennsylvanians live in vastly different worlds. This income gap, especially to the degree it drives gaps in school funding between poor and affluent school districts in the Commonwealth, makes parental income more important than ability in determining access to opportunity for children.”

“Though the growth in inequality reflects long-standing national and global trends, which state policymakers’ cannot completely counter, Pennsylvania policy choices can make matters worse or substantially improve them,” said Dr. Price. “Pennsylvania, for example, could increase its minimum wage or raise taxes on high earners to invest in education for the middle class.”

As well as a higher minimum wage, KRC’s “Agenda to Raise Pennsylvania’s Pay” includes a host of other ways Pennsylvania lawmakers could reduce the inequality of incomes before taxes and transfers (the “pre-distribution”).

The CBPP report and recent reports of the Pennsylvania Budget and Policy Center (PBPC) also offer recommendations for how state tax policies reduce inequality. Currently, Pennsylvania’s tax system takes a larger bite out of the incomes of working people and the middle class than from top earners. Policies that would raise revenue to make critical investments in education while making the tax code fairer include:

• Raising tax rates on non-wage income (“income from wealth”), which goes mostly to high earners, a change that is permitted by Pennsylvania’s constitution even though it does not permit graduated income taxes.
• Closing costly and ineff­ective corporate tax loopholes that allow many large corporations in Pennsylvania to pay little or nothing in taxes.
• Broadening the sales tax base to include more services consumed by wealthy individuals—services such as investment counseling or country club memberships.
• Enacting a state earned income tax credit or expanding the state’s income tax forgiveness program, which boost incomes among low-and moderate-wage working families.

“The fact that the lion’s share of income gains has gone to the wealthiest residents contradicts the basic American belief that hard work should pay off—that the people who contribute to the nation’s economic growth should reap their share of the benefits of that growth,” said Elizabeth McNichol, a senior fellow at CBPP the author of the report. “Such inequality is both a barrier to Americans striving to provide for themselves and their families and a drag on future economic growth.  Reducing it should be a high priority for state policymakers.”

“How State Tax Policies Can Stop Increasing Inequality and Start Reducing It” is available on the CBPP website at www.cbpp.org.