Wolf calls for income tax increase to close looming state deficit, fund education

Gov. Tom Wolf appealed directly to Pennsylvanians — not just their lawmakers — on Wednesday to rally support for tax increases as the state faces down a multi-billion dollar budget hole this year.

Speaking to House and Senate lawmakers from a virtual bully pulpit, Wolf exhorted viewers who agreed with his aims — additional school funding, a $15 minimum wage, and legal recreational cannabis  — to call their state representatives and demand action on his proposal.

“If you’ve had enough of being told why your government can’t solve your problems, make it crystal clear that, this time, you don’t want to hear that anymore; that you won’t accept any more excuses,” Wolf said.

The $37.8 billion plan represents an 11 percent increase in state spending over last year. The new state spending will replace $3 billion in one-time federal COVID-19 aid that the state used to close last year’s budget.

Given the political and economic circumstances, the plan Wolf unveiled Wednesday was one of his most ambitious budget proposals yet. 

It comes as the state stares down a $2.5 billion to $3.5 billion budget gap, high unemployment and a housing crisis. These COVID-driven crises have amplified pre-existing partisan tensions over Wolf’s use of executive powers, all against the backdrop of the 2020 election.

Many of the specifics of Wolf’s newest plan harken back to his first gubernatorial campaign, where he branded himself as the education governor.

Wolf called for a $1.35 billion increase for public education funding and a tuition assistance program for students attending public colleges and universities, garnering the praise of state education advocates

Wolf also called for a recreational cannabis program whose tax revenues would support small businesses and criminal justice programs; a severance tax to fund workforce development initiatives; and a minimum wage increase.

Weed, ethics and a natural gas tax: Gov. Tom Wolf’s 2021 plan for Pennsylvania, explained

The state would pay for much of its new spending by raising the state’s personal income tax rate from 3.07 percent to 4.49 percent.

But his plan would also cut taxes for businesses and for households with two or more children earning less than $84,000 a year. 

Republicans were quick to shoot down the prospect of raising taxes as an extra burden for struggling Pennsylvanians, and potentially unconstitutional.

Pennsylvania currently levies a 3.07 percent flat tax on personal income. The commonwealth’s 1968 constitution disallows a graduated income tax, or rates that are adjusted based on a taxpayer’s individual income.

“It’s unbelievable that a governor in a pandemic would propose this kind of major tax increase,” said House Appropriations Committee Chairman Stan Saylor, R-York.

But the GOP didn’t get the chance to cheer or jeer Wolf in person Wednesday. With the state Capitol closed to the public due to COVID-19 restrictions, Wolf delivered his budget proposal in its unusual format.

Instead of gathering 253 state lawmakers in a joint session of the House and Senate in Harrisburg, Wolf’s office issued a pre-recorded video where the governor addressed his message directly to Pennsylvanians. 

Republican leaders instead said their goal was to avoid adding any new revenue to the budget, instead focusing on the hope of more federal aid from the Biden administration. They also hammered Wolf, accusing him of mismanaging  spending. 

These objections were registered shortly after the full details of Wolf’s plans were made public Tuesday, and continued throughout Wednesday. Republican Senate leaders, for example, called the governor’s draft budget “dead on arrival” in their chamber.

They also said there are too many variables still at play to pursue a tax hike — namely, another federal relief package that could provide a one-time cash infusion that could plug the state’s deficit this year.

The Senate’s GOP leadership team didn’t say outright that they were banking on another federal stimulus. But they also said that the potential for more aid from Washington, D.C. should temper any calls to raise taxes. 

“There’s a lot of elements that have not played out yet in terms of this year’s final budget and our fiscal position,” Senate Appropriations Committee Chairman Pat Browne, R-Lehigh, said. “To opine on where we will close without determining where [Congress] will fall out … is too premature.”

"I know its uncomfortable for Republicans to be crossing their fingers hoping that Chuck Schumer and Nancy Pelosi use budget reconcillation," says ranking Appropriations Democrat Matt Bradford.

— Stephen Caruso (@StephenJ_Caruso) February 3, 2021

Wolf and his Democratic allies in the Legislature countered that the state likely faced tougher hard choices, such as spending cuts and accompanying public sector layoffs, if the state didn’t find new revenues.

“We have a structural deficit. We can no longer raid pots of money like we have for the last several years. We’re running out of options,” said Senate Minority Leader Jay Costa, D-Allegheny.

The governor’s address kicks off months of negotiations with the GOP-led Legislature, which must approve the spending and revenue plan that Wolf is supposed to sign into law by June 30.