Incoming Gov. Wolf targets higher earners to fetch more income taxes

| Saturday, Jan. 17, 2015, 9:20 p.m.

Brad Hilbert knows Pennsylvanians are making more money.

He sees it near his Three Rivers Wealth Management office in Bridgeville, where what he calls “discretionary income” changes hands in restaurants, bars and stores.

“You think about Pittsburgh today versus 10 years ago, it's truly night and day — the amount of growth we've seen,” Hilbert said.

High earners are becoming more common in Pennsylvania, according to data from the Department of Revenue. A total of 13,071 tax filers reported income of $1 million or more in 2012, up from 8,168 millionaires at the pit of the Great Recession in 2009 and making up about 0.2 percent of taxpayers.

The number of people who earned six figures or more went from about 576,000 in 2006 to more than 764,000 in 2012, rising from 10.5 percent of taxpayers to 13.6 percent.

And incoming Gov. Tom Wolf campaigned with a pitch to reach into their pockets for more taxes.

Wolf, a Democrat who will take office Tuesday, seeks to establish an exemption for low- and middle-income workers and raise the flat rate of 3.07 percent to increase income taxes on those who make above $70,000 to $90,000 a year.

A millionaire business owner from York County, Wolf put it bluntly: “People like me should pay more.”

The prospect of higher income taxes concerns business owner Dan Focht, who runs Butler-based environmental controls manufacturer Bioptechs.

“If you continue to burden those of us who produce products and produce activity in general, there's going to be less activity,” Focht said. “The more you burden the producers, the people who generate jobs and wealth, the less wealth there will be for all.”

Jeff Sheridan, Wolf's spokesman, declined to say whether the next governor's March 3 budget address would propose an income tax increase. He said Wolf wants “to make the tax system more fair.”

“He wants to give the middle class their first tax cut in 22 years,” Sheridan said.

Other tax-related proposals from Wolf include imposing a 5 percent severance tax on natural gas extraction and lowering the corporate net income tax.

The newly released 2015 “Who Pays” report from the nonprofit Institute on Taxation and Economic Policy found Pennsylvania has the sixth-most-inequitable tax system in the nation. Combining the total burdens of sales, property and income taxes, the report found the top 1 percent of earners pay 4.2 percent of their income in taxes. The lowest 20 percent pay 12 percent.

The Pennsylvania Constitution requires uniform taxation. It is one of seven states with a flat-rate income tax. Thirty-four states have a graduated structure.

The debate over which system is fairer often splits along party lines: Republicans lean toward equal rates for all, and Democrats favor systems based on ability to pay.

Pennsylvania's Republican-controlled Legislature appears to have little appetite for Wolf's tax platform. Speaker of the House Mike Turzai, a Marshall Republican, said the proposal would move the state in the wrong direction.

“Pennsylvania should be ultimately trying to focus on finding ways to reduce taxes,” Turzai said. “The issue is: Are we responsibly spending the taxes that the citizens already pay?”

Bob Dick, policy analyst with the conservative Commonwealth Foundation in Harrisburg, said Wolf's proposal is likely to encounter strong opposition.

“We have one of the lowest rates, and it's probably one of the fairest tax systems possible,” Dick said. “What his proposal would require is the government treating people unequally on the basis of their income.”

Sharon Ward, executive director of the progressive-leaning Pennsylvania Budget and Policy Center, said it's time lawmakers wake up to tax inequity. The bulk of post-recession income growth is concentrated among higher earners, she said, and the flat tax rate does not capture this growth.

“The commonwealth's policy ought to be to protect the middle class, not to protect the rich,” she said.

Holly Koenig, 50, a yoga teacher from Lawrenceville, said higher earners should “absolutely” pay more than lower-wage workers.

“Nobody likes to give up their money, whether it's $1 million or $10,000,” Koenig said. “But I think more money should come from the people who can afford it.”

In lieu of a constitutional amendment to change the flat-tax structure, which would require approval from two consecutive legislative sessions and a ballot initiative, Ward suggests changing tax forgiveness policies and income eligibility to help low- and middle-income workers.

“There's lots of options, but the first thing that we need is the will to fix the tax system,” Ward said.

Melissa Daniels is a Trib Total Media staff writer. Reach her at 412-380-8511 or mdaniels@tribweb.com.

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