On February 9, amidst the Commonwealth’s longest-ever budget standoff over the 2015-2016 budget, Governor Wolf presented his 2016-2017 budget address to the General Assembly with combative and pointed remarks. While there are tax increases and revenue enhancements in his new budget, the new changes do not come close to the drastic tax overhaul that was contained in his proposal last year.
Major proposed tax and revenue changes are as follows:
Personal Income Tax
The proposal would raise the Commonwealth’s flat Personal Income Tax rate from 3.07% to 3.4%, effective January 1, 2016. The proposal includes a 40% increase in the Tax Forgiveness program to lessen or eliminate the Personal Income Tax burden on low income taxpayers. The proposal would also subject Pennsylvania Lottery winnings to tax. The administration estimates the net revenue increase for 2015-2016 to be nearly $555 million and for 2016-2017, nearly $1.3 billion.
Sales and Use Tax
Unlike last year, the proposal does not involve an increase in the 6% tax rate. The proposal involves expanding the tax base to include movie tickets and basic television, and clarifying that items delivered or accessed electronically or digitally, including books, music, video, and photographs, are subject to tax. These changes would be effective April 1, 2016. The administration estimates a net revenue increase for 2015-2016 to be roughly $66 million and for 2016-2017 to be nearly $415 million.
Severance Tax
The governor has once again included a severance tax as part of his budget proposal. This proposal would impose a 6.5% tax on the value of natural gas severed through unconventional means (fracking). There would be a credit issued against the tax for amounts paid as part of the existing Impact Fee. This tax would be effective on July 1, 2016 and is estimated to provide nearly $218 million in revenue in the 2016-2017 year.
Bank Shares Tax
The proposal would increase the Bank Shares Tax rate from 0.89% to 0.99%, effective January 1, 2016. The revenue estimate for this increase is $37.4 million in 2015-2016 and $39.2 million in 2016-2017.
Insurance Premiums Tax
The proposal includes a 0.5% surcharge on property, casualty, and fire premiums, for a total tax rate on the premiums at 2.5%. This change would be effective January 1, 2016. This is estimated to raise an additional $80.7 million in 2015-2016 and an additional $100.9 million in 2016-2017.
Cigarette Taxes
The per-pack tax on cigarettes would be raised from $1.60 to $2.60, effective April 1, 2016. This will generate an additional $122 million in 2015-2016 and $468 million in 2016-2017.
Other Tobacco Taxes
Effective May 1, 2016, a 40% tax will be imposed on the wholesale price of other tobacco products, including cigars, smokeless tobacco, and e-cigarettes. A 40% tax on loose tobacco is effective July 1, 2016. Revenue estimates are $10.6 million for 2015-2016 and $136 million for 2016-2017.
Gaming Tax
The proposal includes an 8% tax on promotional plays of slots and table games, effective January 1, 2016. This is estimated to raise $21 million in 2015-2016 and $50.9 million in 2016-2017.
The governor’s package includes total spending of $32.7 billion, which includes nearly $1.6 billion in mandated spending increases for debt obligations, corrections, human services, and pensions. The
governor argues that this proposed budget would fully fund pension and debt obligations and eliminate the structural deficit.
What is the outlook? Over the long months of the 2015-2016 budget standoff, the only thing that ever seemed certain about the situation was uncertainty. Only time will tell how Governor Wolf’s current proposals will fare.
