Wolf seeks billions in higher taxes for schools, tax revamp

HARRISBURG, Pa. (AP) — In an ambitious first budget plan, Gov. Tom Wolf on Tuesday proposed more than $4 billion in higher state taxes on income, sales and natural gas drilling to support a huge injection of money into schools and property tax cuts as part of an overhaul of the way public education is funded.

Wolf, a Democrat, is also asking a wary Republican-controlled Legislature to cut corporate taxes by hundreds of millions of dollars, borrow more than $4 billion to refinance pension debt and inject new money into business loans, clean energy subsidies and water and sewer system projects.

All told, new aid for education, plus money to reduce school property taxes, would amount to more than $4 billion.

Saddled with nearly $4 billion in projected deficits and rising costs in the budget year that starts July 1, Wolf said his plans would put the state on sound financial footing after three credit downgrades last year.

Top Democrats applauded it. But the Legislature’s Republican leaders quickly brushed off the nearly $5 billion in increased state spending as effectively dead on arrival — one called the size “historic” — although they said they may eventually find common ground on cutting pension costs and school property taxes.

Wolf said his budget would make the tax system fairer, improve public schools hit by recent cutbacks in state aid and foster a more vigorous business environment that produces more good-paying jobs.

The total tax burden on average middle-class homeowners would drop by 13 percent under his plan, Wolf said.

“It includes Democratic ideas, Republican ideas and clearly ideas that exist beyond party lines,” Wolf told a joint session of the Legislature. “It is rooted in the values of fairness, inclusion and common sense. ... But above all, it recognizes that Pennsylvania will not improve until we rebuild the middle class.”

Pennsylvania, Wolf said, stands at a crossroads, with an education crisis and bottom-of-the-nation rankings in job growth and creditworthiness.

“The reality is, times have changed, and ideas that may have worked in the past simply aren’t working anymore,” Wolf said. “Our budget should be as bold and ambitious as Pennsylvania has been over the past 300 years.”

If passed, it would represent the biggest revamp in state taxation in decades. Republicans showed little enthusiasm for any of it.

Wolf’s proposal for a two-year, $12 billion tax increase would damage the middle class and economy, Senate President Pro Tempore Joe Scarnati, R-Jefferson, said.

“I don’t think Pennsylvanians voted for that,” Scarnati said. It will be “very difficult even to, with a straight face, sit down at a negotiating table.”

By Wolf’s count, his plan would increase overall state spending through the state’s main bank account by less than 3 percent to $29.9 billion from the current budget. Counting pension obligations and collections for school property tax relief, the increase is about 16 percent, to $33.7 billion.

House Majority Leader Dave Reed, R-Indiana, said the “historic” increase would be unacceptable.

“Not only to the General Assembly, but to the people of Pennsylvania,” Reed said.

The centerpiece of Wolf’s plan is a $3.8 billion property-tax initiative, including $600 million in casino gambling revenue, that he said would reduce homeowner and farmstead property taxes by more than 50 percent in the 2016-17 school year. Another $426 million would go toward new $500 rebates for renters with incomes up to $50,000.

Communities with higher tax and poverty rates would receive proportionately more relief.

It would help correct a system in which the state contributes a smaller portion of school costs than Alabama, Mississippi or West Virginia, punishing lower-income homeowners and fixed-income seniors with a high burden of property taxes.

“That means poorer urban and rural districts are not getting the help they need,” Wolf told lawmakers. “The gap in spending between rich districts and poor districts has, as a result, exploded.”

For education, Wolf is seeking nearly $1 billion in increases, from pre-kindergarten programs to universities. Another nearly $700 million more would to go the Department of Human Services, which administers health care and social services programs.

The biggest increase in tax revenues would come from a proposed hike in the personal income tax — the first in 11 years — to generate $2.3 billion next year. The flat tax would increase from 3.07 to 3.7 percent.

Wolf’s proposed increase in the sales tax would be the first in nearly 50 years, lifting the rate from 6 to 6.6 percent while eliminating dozens of exemptions from the tax.

He also would increase taxes on natural gas drilling, banks and tobacco products while cutting corporate taxes. The tax on cigarettes would rise by a dollar to $2.60 per pack.