Our Upside-Down Tax System

The Pew Research Center released the findings from a recent survey (conducted April 5-11, 2017) that shows an increasing number of Americans find our current tax system unfair.

What do people believe is most unfair about our tax system? Nearly 2/3 (62%) of Americans are bothered “a lot” because some corporations do not pay their fair share in taxes; 60% are equally bothered because some wealthy people don’t pay their fair share.

A significantly less number of Americans are bothered by the amount they pay in taxes (only 27% are bothered “a lot” by this).

hat bothers Americans about the federal tax system?

What does this tell us?

Americans are ready to fix our unfair tax system. In Pennsylvania, we have a chance to do just that.

What people perceive about corporations and the wealthy not paying their fair share in taxes is, in fact, true. Especially in Pennsylvania.

First let’s look at the wealthy.

The chart below shows that higher income taxpayers pay a lower share of their income in state and local taxes. The top one percent pays less than half of the tax rate of the middle class and two-third’s less than the lowest 20% (earning less than $22,000 a year). We refer to this as an upside-down tax system because it is those people who earn the least amount of money that are paying the highest proportion in taxes and vice versa.

 

Not all states have such a system.

Take a look at Delaware:

or Maryland:

or West Virginia:

Now, let’s look at corporations. The graph below shows how corporate taxes, as a percentage of the state’s general fund revenue over time, has been declining since 1972. In 1972, corporate taxes accounted for 30% of the general fund revenue while today they only account for 17%.

No wonder the state struggles to pay for the services Pennsylvanians want, like quality public education for our kids and human services that help care for our most vulnerable.

Senate Bill 555, otherwise know as the Fair Share plan, proposes to fix this upside down tax system by dividing our Personal Income Tax into two parts: 1) a tax on wages and interest and; and 2) a tax on income from wealth. This plan would raise $2 billion a year by increasing tax on income from wealth (from the current rate 3.07% to 6.5%) and decreasing the tax on wages and interest from 3.07% to 2.8%.

Still not convinced? Compared to neighboring states, with this plan the top 1% in Pennsylvania will still have an overall tax rate of 3.6%, below Ohio (3.7%), Maryland (4.2%), Delaware (4.9%), New York (6.6%) and New Jersey (6.6%).

And that’s not all. With the Fair Share plan, 85% of Pennsylvanians will see their taxes decrease or stay the same. Which, according to the Pew Research Center study, is not most people’s primary concern. Ensuring that corporations and the wealthy pay their fair share is.

The Fair Share plan, then, is exactly the kind of public policy Pennsylvanians will support. Will our elected officials?

To learn more about the Fair Share plan in PA, go to http://pennbpc.org/fair-share-tax-support-public-investment-pennsylvania.

Comments

0 comments posted

Post new comment

Comment Policy:

Thank you for joining the conversation. Comments are limited to 1,500 characters and are subject to approval and moderation. We reserve the right to remove comments that:

  • are injurious, defamatory, profane, off-topic or inappropriate;
  • contain personal attacks or racist, sexist, homophobic, or other slurs;
  • solicit and/or advertise for personal blogs and websites or to sell products or services;
  • may infringe the copyright or intellectual property rights of others or other applicable laws or regulations; or
  • are otherwise inconsistent with the goals of this blog.

Posted comments do not necessarily represent the views of the Keystone Research Center or Pennsylvania Budget and Policy Center and do not constitute official endorsement by either organization. Please note that comments will be approved during the Keystone Research Center's business hours.

If you have questions, please contact [email protected]

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <p> <img>
  • Lines and paragraphs break automatically.
Refresh Type the characters you see in this picture. Type the characters you see in the picture; if you can't read them, submit the form and a new image will be generated. Not case sensitive.  Switch to audio verification.