General Fund Tax Expenditures and Revenue Options One Pager
By Wendy Lewis , Senior Budget Analyst | 2 years ago
Tax & Revenue Analyst: Brittany Van Strien, Budget Analyst
Policymakers may consider the following sources as replacement revenue to offset other tax reductions, to improve equitable treatment of taxpayers, to pay for proposed initiatives, or to balance the state budget.
Incremental Revenue Estimates
This table shows how state revenue would be affected by an increase or decrease in the tax rate. The revenue change for each hypothetical rate represents a general approximation estimated of revenue that could be gained or lost. The estimates shown in the table can generally be extrapolated to calculate other tax rate scenarios by multiplying or dividing the estimate.
| Incremental Revenue Estimate Table |
| Revenue Impact of Incremental Changes in Tax Rates ($ amounts in millions) |
| Tax Type |
Current Rate |
Tax Rate Increment |
Revenue |
| Sales and Use Tax |
6% |
1% |
$ 2,100 |
| Personal Income Tax |
3.07% |
1% |
$ 5,100 |
| Corporate Net Income Tax |
10% |
1% |
$ 378 |
| Realty Transfer Tax |
1% |
1% |
$ 683 |
| Liquor Tax |
18% |
1% |
$ 24 |
| Malt Beverage Tax |
$2.48/barrel |
1 cent/barrel |
$ 0.1 |
| Cigarette Tax |
$1.60/pack |
10 cents/pack |
$ 56 |
| Other Tobacco Products |
30% of wholesale |
1% |
$ 5 |
This table is a guide, not an endorsement of any particular policy, nor is it an endorsement of any general policy to increase or decrease taxes.
Corporate Taxes - Combined Reporting
Currently, 28 states and the District of Columbia use combined reporting to calculate corporate taxes. In its first year, Pennsylvania could realize $100 million to $200 million in new revenue. After four years, when fully phased in, combined reporting could generate more than $600 million annually. The Department of Revenue estimates possible revenue of almost $1.0 billion at the full rate. Pennsylvania enacted add-back provisions in 2013, but these are generally considered weak, and there is room for strengthening these rules legislatively to be in line with other states.
Sales and Use Tax Exclusions
Currently, 75 items are specifically excluded from the sales tax base. Removal of any such exclusion would result in new revenue to the state. The two largest sales tax exclusions are for food and clothing, worth about $1.5 billion and $680 million, respectively. Only five other states with a sales tax exempt clothing, and 38 states have a full or partial exemption for groceries.
Any proposal to eliminate sales and use tax expenditures should be carefully studied and stakeholder interest should be considered. The list of tax expenditures is annually updated in the governor’s executive budget.