HARRISBURG -- The nominee to be Pennsylvania's top tax collector defended Gov. Ed Rendell's call to increase the state sales tax yesterday, despite criticism from Pittsburgh and Philadelphia legislators who said the regressive levy would have a negative impact on lower-income residents of their cities.
York businessman Thomas W. Wolf, named by Mr. Rendell as the new state revenue secretary, told legislators at a hearing that increasing the sales tax by 1 percentage point will enable the state to give some property tax relief to middle-income homeowners a full year sooner than previously expected.
Mr. Rendell has proposed raising the sales tax from 6 percent to 7 percent in most counties, but from 7 percent to 8 percent in Allegheny and Philadelphia counties. If the Legislature approves the move by June 30, it would raise an additional $1.3 billion in the fiscal year that starts July 1.
Mr. Rendell would use $420 million to begin giving property tax relief to homeowners in July 2007 rather than July 2008, as originally planned. The rest of the additional sales tax revenue would go for rising government expenses and to help cushion the blow from the loss of $717 million in federal funds, much of it for Medicaid costs.
The governor selected Mr. Wolf to replace former Revenue Secretary Greg Fajt of Mt. Lebanon, who is now a senior adviser to the governor. Mr. Wolf still must be confirmed by the state Senate.
Mr. Wolf said that because Pennsylvania exempts food, clothing and both prescription and non-prescription drugs from the sales tax, it's not as painful as it is in other states, which tax those items.
"The sales tax is less regressive in Pennsylvania because of the exemptions we provide," he told the House Appropriations Committee, on the first day of hearings into Mr. Rendell's proposed $27.3 billion budget for 2007-08.
Reps. Jake Wheatley, D-Hill District, and Kathy Manderino, D-Philadelphia, said the higher tax will hurt the lower-income people in their districts, because an 8 percent sales tax would be second only to the tax in parts of New York.
Ms. Manderino said many lower-income residents are renters, not homeowners, and thus won't benefit from reductions in property taxes. She wondered whether raising the personal income tax, now at 3.07 percent, might be a better idea. Mr. Rendell spent most of 2003, his first year in office, persuading the Legislature to raise the personal income tax to 3.07 percent from its previous level of 2.8 percent.
Rendell administration officials said New Jersey already has a 7 percent sales tax, so most of Pennsylvania would simply be coming up to that state's level.
But Ms. Manderino said shoppers in Philadelphia would pay an 8 percent tax, making shopping in her city less competitive than in New Jersey. Allegheny County also imposes an additional 1 percent sales tax (on top of the 6 percent state sales tax) to raise money for the Allegheny Regional Asset District and local governments.
The sales tax is the state's second-largest source of revenue, accounting for 34 percent of the new budget, second only to the 37 percent raised by the personal income tax.
Mr. Wolf said steps also are being taken to correct a "leakage" of sales tax revenues, which are not being paid on many sales made over the Internet or by smokers buying large shipments of cigarettes from out of state.
He said one estimate has put the sales tax lost over the Internet at as much as $800 million. He said the department will take steps to crack down on Internet purchasers and cigarette buyers who aren't paying sales tax currently.
Bureau Chief Tom Barnes can be reached at email@example.com or 717-787-4254.