Pennsylvanians Are in Dire Need of Tax Reform
Today is Tax Day. Each year, April 15th reminds us of the costliness of government spending – and why lawmakers must reduce this financial burden on hardworking taxpayers.
Unfortunately, Pennsylvania is on a collision course with higher taxes. Due to years of spending growth, Pennsylvania faces a $4.8 billion structural deficit. Lawmakers’ options for addressing this deficit are limited: They can either cut spending or increase taxes.
Yet, Gov. Josh Shapiro seems to be embracing a riskier third option: ignore the problem and hope it goes away. Instead of reining in spending, Shapiro’s 2025–26 budget proposal demands $51.5 billion – a 9% increase from the current fiscal year. The governor also wants to illegally transfer $1.6 billion from the Rainy Day Fund, the state’s savings fund reserved for economic emergencies only.
Unfortunately, the governor’s budget relies on faulty math. Pennsylvania’s Independent Fiscal Office found that Shapiro’s revenue projections overestimated the amount of money generated by his newly proposed initiatives – primarily his plans to tax legalized cannabis and gambling –dby nearly $4 billion over the next three years.
This lack of fiscal prudence is a recipe for disaster. Left unaddressed, Pennsylvania’s budget deficit will result in a nearly $2,000 tax hike on the average family of four.
Pennsylvanians will also feel this pinch in their utility bills. The governor has proposed enacting a carbon taxes, through either the Regional Greenhouse Gas Initiative (RGGI) or the governor’s own Pennsylvania Climate Emissions Reduction Act (PACER). If adopted, RGGI or PACER will add an estimated 30% to electricity costs – an unnecessary expense inflating Pennsylvanians’ already-exorbitant utility bills.
High taxes, contributing to an ever-increasing cost of living, have been driving Pennsylvanians away. Census data shows that Pennsylvania lost residents to out-of-state migration for 14 of the past 15 years. When asked why they’d consider leaving the Keystone State, Pennsylvanians list the state’s high cost of living and taxes as their top-two reasons, according to polling.
Pennsylvania’s nearly decades-long brain drain has routed our state’s best and brightest to lower-tax states. Pennsylvanians continue to view states like Florida and Texas – ranked 4th and 7th nationally for tax competitiveness, respectively – as better options for economic prosperity than their home state. Again, the numbers suggest that this is more than just perception. Since 2020, Florida and Texas have gained a combined 1.6 million residents from domestic migration.
This movement has profound electoral repercussions. Based on population growth, Texas and Florida will likely receive four more electoral votes each by 2030. Unfortunately, Pennsylvania is following in the footsteps of high-tax states like New York and California – all of which will likely lose electoral votes in the next five years. Without addressing tax reform, Pennsylvania loses national sway.
But hope is not lost. Fortunately, some lawmakers are working to improve Pennsylvania’s tax burden on hardworking taxpayers and families.
Pennsylvania’s corporate net income tax rate (CNIT) – once the second-highest nationally – has influenced many businesses to look elsewhere to set up shop. Intel Corp, one of the nation’s largest tech companies, passed over Pennsylvania for a $100 billion investment and a 3,000-job factory, choosing to move to Ohio, which has no CNIT. Once again, Pennsylvania keeps losing to – in Shapiro’s words – "friggin’ Ohio.”
Currently, Pennsylvania’s CNIT stands at 7.99%, but it is slotted to reduce to 4.99% by 2031. State senators introduced a bill to accelerate this reduction, dropping CNIT to 4% by 2026. This reduction will yield tremendous benefits. Even a one-percentage-point decrease will put $223 back in the average worker’s annual wages and encourage 18,000 people to move to Pennsylvania, according to one report.
Even Gov. Shapiro supports speeding up the reduction. “Let’s be more aggressive and speed up these tax cuts . . . so that we can compete more effectively and unleash our commonwealth’s full potential,” said Shapiro during his February budget address.
The governor is right. Tax reform puts money back in taxpayers’ bank accounts, invites businesses to create jobs in Pennsylvania, and fosters prosperity that empowers families to thrive economically and set roots down in the commonwealth. With much-needed tax reform, Pennsylvanians might grimace a little less this Tax Day.
