Common Sense: Taxes

“Nothing is certain except death and taxes” is an old expression that expresses the expectation that each person’s taxes are one of the foreseeable but unavoidable aspects of life. However, without taxes, which support all levels of government, we would not have much of what we use and depend on every day: roads, bridges, schools, the military, police and the judiciary, and assurance of quality of food and medicine. The question of the level of taxation that is required to maintain these facets of government is for many of us the primary reason that we vote, and certainly is a central matter that our democracy functions to determine. Therefore, citizens should give considerable thought to our present taxation regime, which many economists argue, and I agree, extracts a disproportionate amount of taxes from the working middle class.

What I want to address in this, the first of three “Common Sense” opinion pieces, is the current Pennsylvania tax regime as it affects working class and middle class Pennsylvanians in particular. I am not taking a partisan political position – in fact I would argue that politicians of every stripe tend to ignore the facts that I will be presenting. They would rather make vague claims such as “no new taxes” or “the system is rigged,” rather than speak plainly about what Pennsylvania’s taxes actually do. Specifically, while Pennsylvania has one of the lowest flat-rate income taxes in the nation at 3.1 percent, Pennsylvania citizens of the working middle class are paying considerable amounts in other taxes and in what are euphemistically called “revenue enhancers.”

For example, the Pennsylvania sales tax, which is set at 6 percent of the cost of many products, and which is higher in certain cities and municipalities, is collected from individuals in small amounts for various retail purchases, and the gasoline tax is similarly collected in small amounts at each purchase. But the cumulative result of both of those taxes, according to the website smartasset.com, when calculated for a married couple jointly earning about $50,000, is that they are paying essentially the same amount in sales and gasoline taxes per year as in income tax.

Gasoline and sales taxes are not by any means the only taxes being paid by average citizens in addition to the income taxes. Pennsylvania collects considerable income from liquor and other beverage taxes, from theater and other entertainment taxes, and hotel taxes, for example. Two persons going to a Pirates or Steelers game and staying overnight in Pittsburgh, with expenses of about $500 could incur $40-$50 in state and local taxes. Wealthy individuals and businesses might well have luxurious box seats (and food) at those games that for tax purposes are deductions, when business guests are entertained. (A couple of taxes that I am not addressing here are Pennsylvania’s tobacco taxes ($2.60 on a pack of cigarettes, for example), which is a matter of personal choice, and the ever-present local school property tax, which citizens vote for directly).

Another important revenue stream that is unique to Pennsylvania, and which the state legislature has responsibility for, is Pennsylvania Turnpike tolls. For the past 15 years the state has required the Turnpike Commission to pay $337.5 million each year to the state Department of Transportation (PennDOT). The result has been a steady increase in tolls, much of which are drawn from people driving to work, or from independent freight haulers. One might think that the turnpike tolls are intended to support the maintenance of the turnpike, but instead the Turnpike Commission has had to forego some planned maintenance because of the substantial diversion of its income from tolls.

Finally, the Pennsylvania Lottery, and all of the other gambling activities that are now sanctioned by Pennsylvania, are taxes in disguise. Sure, citizens can choose not to participate, but the Lottery is promoted by the state in media advertisements, and other gambling and “gaming” functions (which are state taxed or franchised) are otherwise widely advertised. It is obvious from the advertising that it is the working middle class that is constantly solicited to participate, and they are expected to provide a substantial share of the resulting state revenue.

Gambling and gaming revenue is a good example of how Pennsylvania politicians avoid responsibility for making policy decisions on the one hand, and can claim “no new taxes” on the other hand. Legislators do not have to make some of the more difficult decisions about supporting senior citizens’ programs, the designated beneficiaries of Lottery and gaming revenue, because that depends upon how many citizens choose to participate and to what degree. And, of course, state politicians do not take responsibility for draining money from the working middle class when that revenue might be drawn from higher-income citizens by means of a progressive income tax. Again, Pennsylvania’s income tax is a flat-rate tax, applying equally to all who file.

As a historian who has studied American economic history I must at this point turn to the federal income tax – an item that shows up as an unwelcome deduction from paychecks, and a once-a-year irritant in April. The United States Constitution as originally written forbid the federal government from levying a “direct tax” on citizens. For over a century after the Constitution was ratified, with an exception during the Civil War, the federal government relied mostly on taxes of imports to fund its operations. But in 1913 an amendment was added to the Constitution allowing a tax to be levied directly on personal income.

The amendment to the Constitution came about largely because of the massive wealth accumulated by some individuals – Andrew Carnegie, John D. Rockefeller, and Cornelius Vanderbilt, among others. Taxing that wealth was one means of controlling their power, while at the same time the federal government needed more revenue. It had grown too large to be sustained by import taxes: the acquisition of colonies after the Spanish American War required an expanded army and navy; and infrastructure projects, such the Panama Canal, were necessary to support the growth of American commerce. In spite of sporadic reductions in the top income tax rate in recent decades, going back to the presidency of John F. Kennedy, the income tax remains higher for people of greater wealth than those of middling wealth, and poorer Americans generally pay nothing at all.

The federal income tax is therefore the fairest tax for Americans in general, and if Pennsylvania changed its flat-rate income tax to a graduated one, like the federal tax, and reduced, or eliminated significantly, its other taxes, the working middle class would benefit substantially.

Editor’s Note: Stapleton is a Pennsylvania resident.