A Real Tax Cut for Pennsylvania's Middle Class

Howard Wial
Publication Date: 
March 1, 1999

State income tax relief for the middle class is on the agenda in Pennsylvania. In the first half of March, the state House of Representatives voted to cut the state personal income tax rate from 2.8 to 2.7 percent. This reduction would put very little cash back in the pockets of middle-class Pennsylvanians. A family making $30,000 would have only $30 more to spend, a family making $50,000 an extra $50.

The meager benefit for working families from a 0.1 percentage point reduction in the state income tax is one reason that the reduction is not currently expected to become law.

To achieve a more substantial middleclass tax cut, this briefing paper proposes that the Legislature introduce a personal exemption into the state income tax. This would eliminate taxes on part of each taxpayer's income. Under our proposal, a two-adult, two-child family with an income of $30,000 would pay taxes on only a very small fraction of its income. Its take-home income would increase by more than $700.

So that our proposal is revenue neutral, i.e., does not reduce the total revenue raised by the states personal income tax, we propose combining the introduction of personal exemptions with an increase in the state income tax rate to 3.8 percent. Families that make enough to pay taxes would pay a higher tax rate on a smaller part of their income.

Even with this rate increase, any two-adult/two-child family with an income below $104,120 would be as well or better off under our proposal.

In sum, our proposal would help those families that have shared little or not at all in the fruits of economic growth in Pennsylvania
in the last two decades. Implementing this proposal would send a clear signal that lawmakers have the interests of the state's middle class uppermost in their minds.