The working class in Pennsylvania faces the heaviest tax burden, data shows.
Compared to neighboring states, income taxes hit workers hardest, giving them more reason to leave the commonwealth if they have the opportunity.
One state senator wants to change that situation by lowering taxes and boosting spending in other ways.
An analysis from the Independent Fiscal Office found that the effective tax rate for low-income workers was lower in border states that used a graduated – or “progressive” – income tax system compared to Pennsylvania’s flat tax.
"Compared to all border states, Pennsylvania has the least progressive income tax system," the IFO analysis noted.
A taxpayer earning $10,000 pays a tax rate of 3.07% in Pennsylvania but pays no tax in Ohio and West Virginia. Taxpayers earning $30,000 and $50,000 are slightly better off, also paying a 3.07% tax rate, third lowest among border states.
“Pennsylvania punishes those earning under $30,000 with the highest taxes and lowest minimum wage,” said Sen. Art Haywood, D-Abington, who requested the analysis.
While the tax rate isn’t a significant source of funding for government services, the individual burden can be high.
“We may not be getting a lot of revenue in aggregate from the perspective of the commonwealth of Pennsylvania, but for each of the families who are paying, it’s the highest tax rate in the region,” Haywood said. “We got a long way to go to continue to attract and retain folks in the state. Our state definitely needs to make sure that people are moving up the economic ladder, and that’s critical for prosperity.”
Making the choice to stay more appealing to low-income workers is possible, Haywood said, pointing to the reform of the corporate net income tax last year as a model.
“When we recently reduced the corporate tax rate over time, the intention was to attract businesses to Pennsylvania and that businesses would help Pennsylvania grow and bring on employees,” he said. “This reduced tax strategy or policy, I think, should be applied right here so that we can create — or really, end — the significant disincentive that we’ve created that punishes folks, lower-paid folks for working.”
He also wants to see action on two other policies: boosting the minimum wage to $15 an hour and more state funding for higher education.
“For someone who’s starting off low pay, trying to move up the economic ladder, they have a much better chance of moving up the economic ladder into the middle class in New Jersey where the minimum wage is $14 an hour or in New York where the minimum wage is $15 an hour,” Haywood said. “All these states — where you start is higher, so that means you got more chance to get into the middle class.”
Raising the minimum wage has been a major position for state Democrats, as The Center Square previously reported. Some state Republicans have supported some level of increase to the minimum wage in recent legislative sessions, but no deal has yet materialized.
Other state Republicans argue that creating more and better jobs is a better approach for economic mobility, and labor shortages since the pandemic have pushed up many starting wages.
Haywood argued that raising the minimum wage and higher education funding is a way to keep residents.
“Education is less expensive in other places,” he said. “I’ve heard about some advertisements from some competing state systems where they are actively trying to recruit Pennsylvania students to attend their schools … these additional credentials are significant for moving people up the economic ladder and decreasing the cost of it by paying more for higher education is a significant thing that we can do here in Pennsylvania.”
