The trillions of dollars in higher federal taxes backed by President Joe Biden and supported by the Democratic-led Congress are not the only tax threats facing Americans this year. Individuals, families, and employers located in three rust belt states — Wisconsin, Illinois, and Pennsylvania — also have Democratic governors who are calling on their state legislatures to enact billions of dollars in higher state taxes in 2021.
As part of his 2021-2023 executive budget, Wisconsin Governor Tony Evers (D) has proposed several tax increases to start his third year in office. Governor Evers seeks to raise nearly half a billion dollars by restricting the state’s manufacturing and agriculture tax credit, and $350 million in additional tax revenue from increased state taxation of capital gains.
“At a time when we want to encourage saving and investment in the state, the Evers budget would sharply raise the cost of capital by increasing capital gains taxes,” Noah Williams, Professor of Economics at the University of Wisconsin – Madison, told the Institute for Reforming Government (IRG), a Wisconsin-based think tank that recently published an analysis of Evers’ budget. “I also think it’s unlikely that the capital gains tax would raise the projected amount of revenue, as past episodes of capital gains increases have found that people either realize the gains before the tax takes hold or delay realization.”
Republican state legislators and other critics of Governor Evers’ proposed tax increases, in addition to concerns about the economic damage that higher levies would lead to, see them as unnecessary. Wisconsin is projected to finish the current fiscal year at the end of June with a $1.8 billion surplus. That surplus does not take into account the considerable amount of additional cash that the federal government would send to Wisconsin as part of President Joe Biden’s $1.9 trillion spending plan that passed the House on February 27 and now moves to the Senate. With his new budget proposal, Governor Evers manages to turn a projected surplus into a deficit, all while raising taxes, no small feat.
“As the economy teeters between recession and economic recovery, Governor Evers takes from the wallets of hard-earning Wisconsinites and businesses by more than $1 billion and irresponsibly – and unnecessarily – turns a projected budget surplus into a deficit,” notes IRG’s analysis of Evers’ budget. “While families all over the state worry about their children’s learning during COVID, Gov. Evers’ budget would limit educational options and throw millions at schools that are not open five days a week.”
Governor Evers’ new budget reduces school choice in Wisconsin, the birthplace of the school choice movement, by restricting the state income tax deduction for K-12 tuition with a new income tax cap and proposes other policy changes designed to diminish school choice, which include:
- Enrollment freeze in the Milwaukee Parental Choice Program, Racine Parental Choice Program, and Wisconsin Parental Choice Program.
- Enrollment freeze in the Special Needs Scholarship Program.
Wisconsin residents aren’t the only Americans who have a governor proposing more taxes and less school choice. Like his Democratic counterpart in Madison, in Illinois Governor J.B. Pritzker (D) has also unveiled a budget that raises the state tax burden for households while reducing schooling options.
Governor Pritzker wants to raise revenue by scaling back the state’s tax credit scholarship program, diminishing a program that “helps disadvantaged students afford private school education through donations from both corporations and individuals,” writes Adam Schuster, senior director of budget and tax research for the Illinois Policy Institute.
“The proposal by Gov. J.B. Pritzker to slash the Invest in Kids Tax Credit Scholarship program reduces the most effective state program for low-income and working-class students in Illinois,” the Catholic Conference of Illinois said in a February 17 statement. “Even during the pandemic, scholarship recipients have been attending high-quality, non-public schools.”
The tax credit scholarship devaluation is one of nine tax increases unveiled by Governor Pritzker in February, a little more than three months following the defeat of his graduated income tax constitutional amendment at the hands of Illinois voters. While Governor Pritzker’s devaluation of scholarship-related tax credits would reduce school choice, his other tax proposals would harm numerous economic sectors. The Illinois Policy Institute’s Schuster points out the new sales tax on biodiesel gasoline that’s part of Governor Pritzker’s package “is expected to hurt Illinois farmers and add 20 cents per gallon of diesel.”
While Governor Pritzker declined to propose an income tax increase, something that was rumored to be a possibility following the defeat of his progressive income tax measure last November, that’s exactly what Pritzker’s Democratic counterpart in the Keystone State is calling for.
Pennsylvania Governor Tom Wolf (D) offered a new budget on February 24 that includes the largest tax increase in Pennsylvania history. Most prominent among Wolf’s revenue raisers is his proposal to raise the state’s flat income tax rate from 3.07% to 4.49%, which represents a 46% rate increase.
In addition to the millions of individuals and families across Pennsylvania who would see their take home pay reduced under Wolf’s proposed income tax hike, IRS data shows hundreds of thousands of small businesses file under the individual income tax system in Pennsylvania and would see their job creating and sustaining capacity depleted by Governor Wolf’s income tax hike. Critics of Wolf’s tax hikes point out that Pennsylvania lawmakers have already imposed numerous tax hikes in recent years.
“While legislators have rejected most of Gov. Wolf’s 14 proposed tax hikes, Pennsylvania has raised taxes twice in the last five years,” Elizabeth Stelle, director of policy analysis for the Commonwealth Foundation, noted in testimony presented to state legislators on February 23. “Taxes were hiked on streaming services like Netflix, cigarettes, vape shops, gambling, online retailers like Etsy, and fireworks.”
The new tax on natural gas extraction in Pennsylvania approved by then-Governor Tom Corbett (R) and the Republican-controlled legislature in 2012, which they referred to as an “impact fee,” has not caused calls for additional taxation of natural gas to abate. Governor Tom Wolf’s new budget continues the push for a state severance tax on natural gas extraction, something that has been called for and rejected almost perennially since Ed Rendell (D) was governor.
“As in previous years, the budget includes a natural gas severance tax on top of the impact fee, making our tax rate on natural gas the highest in the nation,” Stelle adds. “As in previous years, it also calls for a minimum wage hike while ignoring systematic failures of our assistance programs.”
In addition to sharing Governors Pritzker & Evers’ desire to impose numerous state tax hikes in 2021, Governor Wolf also shares their opposition to programs that expand school choice. Governor Wolf recently vetoed legislation that would permit more children to benefit from the state’s tax credit scholarship program, dubbed the Educational Improvement Tax Credit (EITC) program. In addition to attacking that program, the same type of program that Pritzker is clamping down on in Illinois, Wolf has also been critical of charter schools and stated that he believes “all students should be educated through the public school system.”
“While private and charter schools are providing the learning opportunities families want, more than 40,000 students are denied tax credit scholarships, and thousands more are on waiting lists for seats in charter schools,” writes Nathan Benefield, Commonwealth Foundation Vice President and COO, in making the case that Pennsylvania families need more educational options, not fewer.
In Wisconsin and Pennsylvania there are Republican-controlled state legislatures that can block the tax hikes sought by Governors Evers and Wolf. Unfortunately for Illinois taxpayers hoping to avoid being hit with both federal and state tax hikes this year, Republicans can do nothing to stop tax increases in Springfield, where Pritzker’s fellow Democrats control both chambers of the state legislature.
Recent years and decades have seen Pennsylvania, Illinois, and Wisconsin lose many residents — families and businesses — to states like Florida, Texas, Tennessee, North Carolina, South Carolina and other states with more hospitable tax and regulatory climates. Should Governors Pritzker, Evers, and Wolf have their druthers with tax policy, an exacerbation of current domestic migratory patterns should be expected to continue and possibly intensify.
Read More: Three Rust Belt Governors Seek More Taxes, Less School Choice