House Appropriations Committee lawmakers focused on the impact that several aspects of Gov. Tom Wolf’s 2021-22 budget proposal would have on taxpayers and employers during the first week of budget hearings – particularly with respect to minimum wage increase and Personal Income Tax increase proposals.

At a hearing with the state’s Independent Fiscal Office, IFO Executive Director Matthew Knittel reiterated his findings that while increasing the minimum wage has economic benefits, it also leads to job loss. He explained that the IFO’s projection of 27,000 lost job opportunities in Pennsylvania from a higher minimum wage is based on data from academic studies and occupational employment statistics. He said that the altered workforce as a result of the COVID-19 pandemic will include 230,000 fewer jobs in 2022, most of which of which will entry-level and lesser-skilled. A recent Congressional Budget Office report – which showed that an increase to $15 could lead to the loss of 1.4 million jobs nationwide – was also brought up at the hearing; and Knittel said they believe that the effect of the minimum wage would lead to higher costs on goods and services.

Also impacting the jobs market – and another topic of discussion during the IFO hearing – is the drop in the number of young working-aged people in Pennsylvania while the working senior age population has increased. Knittel said these demographics are concerning to their office, and is attributable both to a lower birth rate and a small “net-out” migration from Pennsylvania. While many students come to Pennsylvania to obtain a high-quality education, Knittel suggested that polices encouraging those students to remain in the state – and reducing the “brain drain” that threatens the competitiveness of our Commonwealth – would be worthy endeavors.

Questions were also raised at the hearing regarding the trends of the pandemic on the workforce, such as the ability for workers to find childcare, and how those types of factors could exacerbate Pennsylvania’s budgetary challenges. Knittel said that female workers are disproportionally affected and that this could create strong implications for the workforce and future economic growth.

An Economic & Budget Update from the IFO is available here.

At a Department of Revenue budget hearing last week, lawmakers raised scenarios that taxpayers would face under Gov. Tom Wolf’s budgetary plan to increase the personal income tax rate nearly 50 percent. One scenario was that a family of four making over $100,000 would see the full effect of the PIT raise to 4.49 percent, while those making just $500 less would qualify for tax forgiveness and see a lower rate. When asked if the governor’s proposal could face court challenges for asserting that those making $95,000 a year would be considered in “poverty,” Revenue Secretary Dan Hassell said that the current system of tax forgiveness has “really stood the test of time.” Secretary Hassell added that the governor’s proposal is to define poverty more broadly, saying that it is not something that is defined consistently across various programs and statutes. One lawmaker said that while the administration claims the new PIT rate would apply to everyone, they’ve estimated that about 43 percent of taxpayers would be paying higher rates, about 5 percent would stay the same and 52 percent would pay less – which is effectively creating three separate classes of tax rates, which could be considered unconstitutional.

According to a story about the hearing by Pennsylvania Legislative Services, Committee Chairman Stan Saylor, R-York, said that taxpayer groups in Pennsylvania have said our state is the fairest in the nation in terms of the PIT because there are no big exemptions for corporations and individuals. He commented, “The only people who seem to not like the fair system we have in Pennsylvania and those who like to raise taxes and create little exceptions,” adding that he does not see how the PIT tax proposal will help low-income taxpayers.