Understanding exactly how much government is extracting from the economy to pay for its own operations is a complex undertaking. Every U.S. state has a unique tax code of its own. Some states pick and choose which taxes to impose, while others seem to have taken an “all of the above” approach.
A series of recent reports by the Tax Foundation offers an opportunity to index three different kinds of taxes and create a sort of meta-ranking of the states. A Watchdog.org analysis of the reports shows that when it comes to Pennsylvania, “all of the above” appears to be the tactic that the state has taken when it comes to taxes.
The Tax Foundation looked at state and local tax collections per capita, corporate income taxes per capita, and per capita sales tax collections over the course of three reports this month. When taken together, the reports paint a picture of Pennsylvania as the 13th-highest taxing state on a per capita basis.
That kind of result was the norm for Northeast states. New Jersey was second-worst, Connecticut third, Massachusetts fifth and New York eighth.
When it comes to sales tax, that was where Pennsylvania fared best, landing at 29th-highest with $799 per capita. Hawaii was highest at $2,244 per person, while five states – Alaska, Delaware, Montana, New Hampshire and Oregon – have no sales tax at all.
The sales tax collections don’t necessarily mirror the sales tax rates. If one state has a relatively low rate, but it sees a high degree of sales-tax generating activity, then that state’s collections will be robust despite its low rate. Conversely, a state with a high rate might not collect as much if its economic activity is low.
“In most states, narrow sales tax bases make the sales tax less productive (from a revenue standpoint) than it could be,” wrote the Tax Foundation’s Katherine Loughead. “Many states exempt certain goods (like groceries or clothing) from the sales tax for political reasons, but these exemptions put upward pressure on the tax rate that applies to other purchases, such as household goods or meals at restaurants.”
The foundation’s report on corporate income taxes per capita landed Pennsylvania at 12th overall with $192 per person. Again, a handful of states have opted not to impose a corporate income tax, which in those cases may reflect the commonly held attitude that corporations simply pass tax expenses along to their customers anyway.
The Northeast again was a source of some of the highest corporate income tax per capita collections, with New Hampshire first, Massachusetts second, Delaware third, New Jersey eighth and New York 10th.
Loughead pointed out that corporate income taxes are becoming less of a preferred source for states for a variety of reasons, as many companies shy away from the traditional C corporation structure and states eye revenue streams that are less volatile, among other reasons.
“Corporate income taxes have been shown to be more detrimental to economic growth than other major state tax types, including personal income taxes, consumption taxes, and property taxes, and they are administratively complex for both taxpayers and states,” she wrote.
And finally, when it came to looking at the state and local tax collections per capita, Pennsylvania was 16th highest at $4,950. In the Northeast, New York was second, Connecticut third, New Jersey fourth, Massachusetts sixth and Maryland ninth.
North Dakota, not generally known as a high taxation state, was first in this category, but Loughead pointed out that the high finish was a bit deceptive because that state derives a lot of its revenue from a severance tax on oil.
“While companies in resource-extraction industries are legally responsible for paying severance taxes to state revenue departments, companies pass the cost of these taxes along to consumers in the form of higher prices,” she wrote. “It is ultimately oil and gas consumers across the country who bear the economic cost of oil extraction taxes in North Dakota.”
The issue of Pennsylvania’s relatively high taxes has become an issue in the governor’s race as Republican challenger Scott Wagner has called to eliminate school property taxes and reduce corporate taxes.
“In order to be competitive against other states trying to attract new businesses, we must lower our Corporate Net Income Tax,” the Wagner campaign wrote in a document detailing proposals to jump-start the state’s economy. “Currently, Pennsylvania has the third highest tax imposed on businesses, making us one of the most expensive places to do business. As Governor, Scott will work with the General Assembly to immediately lower, and then phase down the Corporate Net Income Tax.”