By Kevin Kane
Every April, Pennsylvanians are reminded of their crushing tax burden—one of the highest in the nation. And a growing number of Pennsylvanians have had enough. A new poll by the Commonwealth Foundation finds more than four-in-ten Pennsylvanians have either thought about leaving the state or know someone who has thoughts about leaving or has already left. They point to lower cost of living, better jobs and opportunities, and lower taxes among the top reasons for leaving.
As state lawmakers discuss the next state budget, they need to put fiscal safeguards in place to restore Pennsylvania as an attractive place to live and work.
According to the poll, almost 70 percent of Pennsylvanians think their taxes are too high—and they’re not wrong. Between property, sales, excise, and income taxes, Pennsylvania has the fourth-highest tax rates in the United States, 30 percent higher than the national average. The average Pennsylvania resident must surrender $14 to the state in various taxes for every $100 they earn—on top of the $11,000 paid by the average U.S. household in federal income taxes each year. The state also has the third-highest gas tax, following only California and Illinois.
Unfortunately, Pennsylvania’s tax climate isn’t much better for businesses.
Pennsylvania has an overall rank of 33 in the Tax Foundation’s 2023 State Business Tax Climate Index, with 50 being the worst. Another report ranks Pennsylvania as the seventh-worst state in which to start a new business.
The data is clear—high taxes and other state barriers make Pennsylvania an expensive, and difficult, place to live or start a business. Unsurprisingly, people are fed up and moving to states with friendlier economic climates.
From July 2021 to July 2022, Pennsylvania lost nearly 40,000 residents to other states, the eighth-largest population loss from domestic migration within that timeframe in the United States. This is not an outlier or a new problem. Every year since 2010, except for one, the commonwealth experienced a net loss in domestic migration.
Then there are also the Pennsylvanians that haven’t left yet but want to. The poll found that it’s Pennsylvanians between 18 and 44—our workforce and taxpayers—that most want to leave. They’re looking to Florida, Texas, and South Carolina as top destinations for relocation, the same states they listed as having better economic outlooks.
Gov. Josh Shapiro needs to turn things around, but his latest budget proposal doesn’t do that.
Pennsylvania is barreling toward a major structural deficit over the next few years. But Shapiro’s budget proposal spends almost $2.9 billion more than ongoing revenue, exacerbating this deficit and making future tax increases more likely. The budget also excludes the business tax reductions Shapiro campaigned on—specifically, his promise to lower the corporate net income tax (CNIT) from 9.99 to 4 percent by 2025.
Pennsylvanians need a reasonable budget and new fiscal safeguards to protect them from excessive overspending and future tax hikes.
A first step is for lawmakers to pass the Taxpayer Protection Act (TPA), a constitutional amendment that would tie state spending growth to inflation and population growth. TPA would break the cycle of the commonwealth overspending in good economic times and raising taxes in the aftermath of recessions. A similar reform has had immense success in Colorado, ensuring that its state spending never outpaces taxpayers’ ability to pay the bill.
If this safeguard had been put into place since 2003, Pennsylvania taxpayers would have saved nearly $20,000 in taxes per family of four over the last two decades.
Pennsylvanians have had enough of high taxes and are increasingly looking to other states, but there’s still an opportunity to reverse these trends.
State lawmakers need to expedite CNIT reductions and stem future tax increases by restraining spending now. Easing the tax burden will help Pennsylvania stem the exodus and become an attractive destination for families and businesses.