Pennsylvania tax system responds to jobs more than productivity, personal income, study finds
Pennsylvania’s tax system is the most sensitive in the nation to jobs, a study finds.
Compared to other states, Pennsylvania’s three largest state revenue sources responded more to changes in payroll employment than they did to changes in the state’s gross domestic product or personal income between fiscal years 2010 and 2015, according to the Independent Fiscal Office.
The office conducted the study at the request of an unnamed legislator.
While it might seem like the state would want a more responsive tax system, that’s not necessarily the case, the study says.
Pennsylvania has a flat-rate personal income tax with no deductions or exemptions. States with progressive tax systems — those that charge higher rates for higher incomes — see more growth during economic upturns but they also see larger declines during economic downturns, the study says.
The other two taxes included in the study are the corporate income tax and the sales and use tax.
The limited time period of the study also limits the conclusions analysts can make from the data, the study says.
Since all the data come from an economic recovery period, it may not accurately show how states’ tax systems respond during downturns or mild recessions. It also doesn’t account for the difference in how states with diverse economies respond to changes compared to states like Pennsylvania, which has a relatively large number of retirees, the study says.
The study covers a period when inflation was very low, a condition that favors wage earners since it’s rare for wages to keep up with higher rates of inflation, the study notes. The results could change during a period of high inflation.
Brian Bowling is a Tribune-Review staff writer. Reach him at 724-850-1218, [email protected] or via Twitter @TribBrian.