(January 2004) Pennsylvania's 2003-2004 state budget supplement approved in December
featured a revenue package projected to raise $722.9 million in 2003-2004 - and
double that - nearly $1.5 billion - in 2004-2005. Several new or increased taxes
primarily impact individuals.
The budget included two new 5% gross receipts taxes - one on cell phone
bills, another on interstate land lines. The package also included two state tax
increases - a personal income tax increase, from 2.8% to 3.07%, and a hike in
the state cigarette tax from $1.00 to $1.35 per pack. (For
an overview of the entire budget package approved in December, click here:
http://www.issuespa.net/articles/view.do?id=6141)
What's the impact of the new tax increases? The personal income tax is
expected to raise the most revenue - nearly half of the overall revenue package.
IssuesPA examined the two new taxes and the two tax increases across income and
households to determine the impact of the new tax policies on Pennsylvanians.
So who really pays?
Using sales, personal income, excise and gross receipts taxes and based
on average consumption by income level - including average consumption of
cigarettes and use of cell phones -- middle and upper income working households
will experience the greatest increase in state tax burden. As the chart below
illustrates, a household earning $40,000 per year can expect to pay almost 6% of
household income in state taxes in 2004 - compared to 5.6% in 2003. A household
earning $100,000 per year will pay an estimated 5.18% in 2004 - compared to
4.86% in 2003.
|
Household
Composition
|
Annual
Income
|
2003 State Taxes
|
2004
State Taxes
|
Average
Change
|
|
$$$
|
%
of Income
|
$$$
|
%
of Income
|
$$$
|
Percentage
Change
|
|
Working
Married Couple with
2 Children
|
$15,000
|
412
|
2.75%
|
433
|
2.89%
|
+21
|
5.10%
|
|
$40,000
|
2,241
|
5.60%
|
2,393
|
5.98%
|
+152
|
6.78%
|
|
$100,000
|
4,857
|
4.86%
|
5,177
|
5.18%
|
+320
|
6.59%
|
|
Working
Single Adult, No
Children
|
$15,000
|
763
|
5.09%
|
818
|
5.45%
|
+55
|
7.21%
|
|
$40,000
|
2,241
|
5.60%
|
2,393
|
5.98%
|
+152
|
6.78%
|
|
$100,000
|
4,857
|
4.86%
|
5,177
|
5.18%
|
+320
|
6.59%
|
|
Retired
Married Couple
|
$15,000
|
412
|
2.75%
|
433
|
2.89%
|
+21
|
5.10%
|
|
$40,000
|
1,151
|
2.88%
|
1,198
|
3.00%
|
+47
|
4.08%
|
|
$100,000
|
2,088
|
2.09%
|
2,141
|
2.14%
|
+53
|
2.54%
|
Source: Pennsylvania Economy League calculations
Who doesn't pay - relatively speaking?
The impact of the tax changes on low-income families varies, depending on
household composition. A personal income tax forgiveness credit impacts
low-income working households. And the tax-back credit for one dependent
increased from $9,000 to $9,500, beginning this year.
A married couple earning $15,000 a year with two children would experience an
overall state tax increase of about $21 per year - assuming they use a cell
phone, make long distance calls, and smoke an average amount based on income
level. To the extent they don't use a cell phone, smoke or make long distance
calls, the tax increase would decline, and vice-versa.
The family wouldn't owe state income tax after the tax forgiveness credits
are applied. The overall impact of the tax increases on low-income families is
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