Hey Pennsylvanians, expect higher income taxes if Gov. Ed Rendell gets his way.
Pennsylvania should temporarily increase its personal income tax rate to generate $1.5 billion a year to deal with a severe downturn in state revenues, Rendell said on Tuesday.
To help close a $3.2 billion revenue gap, Rendell wants a half-percentage-point increase, which would raise the rate from 3.07 percent to 3.57 percent.
An income tax increase faces a tough fight in the Legislature, where Republicans who control the state Senate offered a state budget that relies on cuts rather than additional taxes.
Why the increase?
"There is talk in Harrisburg that we can cut our way out of this problem," Rendell said. "I'm sad to tell you today that we simply can't."
The proposal is necessary because, even with severe cuts, the state still has a budget deficit, the governor said.
"The simple truth is we have no good choices," Rendell said. "There are no shortcuts out of this crisis, no magic bullets, no painless path out of this morass."
He continued to also favor new taxes on tobacco and natural gas extraction, and dipping into the state's "rainy day" contingency fund, said the Gov.
During 2003, Rendell's first year in office, he and lawmakers increased the personal income tax rate from 2.8 percent to its current level. It was also increased in the difficult budget year of 1991.
There is no support within the Republican caucus for increasing the personal income tax, said Senate Majority Leader Dominic Pileggi, R-Delaware.
Pileggi wants to see revised budget details from the administration, including multi-year projections about how the tax increase would affect spending, but he was doubtful about the temporary nature of the proposal, he said.
"Many taxes that we currently have on the books, when they were first proposed, were proposed as temporary taxes," Pileggi said. "The unfortunate tendency is, once taxes are imposed, they stay in place."
A personal income tax will, over time, make the state less competitive and result in lost jobs, he said.
The proposed rate of 3.57 percent would leave Pennsylvania with the nation's third-lowest state income tax rate, according to the governor's office.
The announcement came two weeks before the state's fiscal year ends. It's the first time Rendell advocated increasing a broad-based tax to cope with the financial crisis.