Tax Fairness in the Keystone State: Challenges and Opportunities June 9, 2016 Aidan Russell Davis Senior Policy Analyst aidan@itep.org www.itep.org

Introduction to ITEP The Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP's mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies.

PA’s Tax System is More Regressive Than the National Average Comparing PA to the US average State and local taxes as share of income, 2015

Incidence in Nearby States Delaware New York Maryland Ohio New Jersey West Virginia

Regressive States Typically Have Low Reliance on Income Taxes

Fairness and Other Tax Reform Goals Adequacy Sustainability Simplicity Competitiveness

Tax Fairness: Why Should We Care? Overwhelming public support Avoid taxing poor people further into poverty The federal tax system incentivizes progressive structures A sustainable tax system can’t rely on its poorest residents top 1% has more income than the bottom 40% top 20% has more than the bottom 80% Progressive tax systems are more sustainable. 7

Fairness-Enhancing Reform Strategies for Pennsylvania Increase role of personal income tax Amend constitutional restriction Tax “wealth” at a higher rate than wages Simulate graduated tax with expanded exemptions Expand “tax forgiveness” credit Enact refundable low-income tax credits Expand sales tax base to include services

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Aidan Russell Davis aidan@itep.org www.itep.org