Pennsylvania’s House of Representatives Acts on Taxes

Those of us who have been following the Presidential primaries over the past few months may have missed developments closer to home. Last week, Pennsylvania’s House of Representatives engaged in what was described by one Allentown newspaper as a “tax cutting party” slashing everything from Pennsylvania inheritance taxes to taxes on business profits, cell phones, and pet adoptions. If adopted, one bill would eliminate in stages over the next 4 years both the Pennsylvania Inheritance Tax and the lesser known Pennsylvania Estate Tax. House Bill 377 passed the House unanimously on Thursday, January 17. It would also provide an income tax credit for the working poor.

Before readers become too excited, it should be noted that HB 377 is not the law yet and chances are good that it will not become so later since it still would have to pass the Pennsylvania Senate and survive any veto by the Governor. Unlike the federal government, Pennsylvania is obligated by its Constitution to have a balanced budget. If passed as proposed, the Bill could leave a multibillion hole in the State budget. The loss of inheritance tax revenue alone has been calculated at about $420 million in the first two years. Without offsetting revenue or expenditure cuts, Pennsylvania likely cannot afford the law.

With all of this in mind, one might ask why the House passed HB 377. Here is where an understanding of political time tables may come in handy.

This year all of the 203 seats in the Pennsylvania House of Representatives are up for election. Half of the seats in the Pennsylvania 50 member Senate are also at risk. Democrats hold a one vote majority (102 versus 101) over Republicans in the House. All members of the House, both Democrat and Republican, may now legitimately report that they voted for tax cuts in 2008 and frankly, HB 377 aside, with an election year this close, it is reasonable to assume that some real tax cuts will come from the debates. The question is which ones.

Republicans have been reported as favoring an immediate reduction in the Pennsylvania Income Tax to put money directly in taxpayers’ pockets. This may fit with the idea of a stimulus package being discussed nationally to kick start a sluggish economy.

Democrats have renewed focus on property taxes. As most Pennsylvanians who have followed the debate know, the last proposal to suggest property tax relief by substituting increases in either earned income or sales taxes, Special Session Act 1 of 2006, was a decided failure when voters in all but a few local election districts rejected the measure last year.

Despite last year’s Act 1 loss, in another unanimous vote, House Democrats and Republicans joined to pass a bill for amendment of the Pennsylvania Constitution to provide for complete elimination of property taxes on residences and farms. The proposal described as having “a long road ahead” would require passage by the Senate this term, additional favorable votes in the House and Senate in the 2009-2010 Session and then submission to the voters in a referendum. The Constitutional Amendment, if passed, would allow property taxes to remain on business property.

As attractive as the notion of elimination of property taxes may be to homeowners, it would make loss of Pennsylvania Inheritance Tax revenue look like a blip on the radar screen. We would likely again be faced with a choice of increased income or sales taxes.

With all of the discussion regarding tax cuts, one might receive the impression that Pennsylvania has funds to spare. While, with half of the fiscal year complete, (Pennsylvana has a July 1 to June 30 fiscal year), Pennsylvania currently has a surplus, Governor Rendell has warned he is looking to additional cuts in general governmental administrative costs but with no general fund tax increases. One pundit noted that he would be satisfied if Pennsylvania would just pass its budget on time.

Some of the major issues on the table for 2008 are proposals to amend Pennsylvania’s Open Records Law to extend public access, and the Governor’s health care proposal, CAP, Cover All Pennsylvanians, which is an ambitious program to cover all uninsured Pennsylvanians.   Funding would be anticipated from a ten cent per pack cigarette tax increase, taxes on cigars and smokeless tobacco, and tap into an unexpected surplus in the MCare Fund that has been supplementing physicians’ malpractice insurance premiums.

Since Pennsylvania officials are likely to be looking for new ideas and solutions to old ones now, readers might wish to share their thoughts. It seems clear that legislators and candidates will be listening.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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