- Associated Press - Saturday, March 22, 2014

HARRISBURG, Pa. (AP) - Under the banner of fairness and equality, the Democratic candidates for governor are proposing a grab bag of changes in Pennsylvania tax laws that would tap wealthy taxpayers and businesses to ease the economic pain of the middle class and the poor.

In many cases, their arguments echo the national Democratic Party’s rhetoric over the growing gap between the rich and the poor.

The five Democrats are unanimous in their calls for a significant tax on the state’s burgeoning natural gas industry after what they say has been nearly four years of grossly inadequate taxation under Republican Gov. Tom Corbett’s administration.

Some candidates are eyeing the personal income tax as a potential vehicle for redistributing the burden of the roughly $12 billion-a-year tax - the biggest single source of state revenue - and some advocate increasing other taxes and closing business tax loopholes.

One of the most provocative ideas would overhaul the 43-year-old personal income tax to exclude more lower-income households from taxation, reduce taxes for the middle class and increase taxes on the highest earners.

Tom Wolf’s plan would exclude from taxation every taxpayer’s income below a certain amount - he calls it a “universal exemption” - and apply a still-to-be-determined flat tax rate to any portion of income above that.

“It asks more from people who make more,” said Wolf, a wealthy businessman from York who has plowed $10 million of his money into the primary race and whose heavy TV advertising has helped cement his status as front-runner.

If the universal exemption were set at $30,000 and the tax rate at 4 percent, an individual with $50,000 in income would pay $800 in taxes compared with $1,535 under the present system, according to an Associated Press analysis. Someone with $500,000 in income would owe $18,800 in taxes compared with $15,350 under the current system.

Someone with a Pennsylvania taxable income of $30,000 pays $921 under the present system but would pay no tax under Wolf’s plan.

Although Wolf says his goal is to keep overall revenue from the tax on its current track, the rate would need to be higher than the current 3.07 percent because of the smaller number of households that would be subject to the tax.

Whether the proposal could withstand a legal challenge is unclear. The Pennsylvania Constitution declares that “all taxes shall be uniform” but also lists numerous exemptions and special provisions.

Wolf, a former state revenue secretary, says he believes the universal exemption is permissible so long as a single tax rate is used. Some legal experts disagree.

“You’re definitely going to get a challenge to that,” said Philadelphia lawyer Robert H. Louis, a former chairman of the tax law section of the Pennsylvania Bar Association.

One of Wolf’s Democratic primary rivals, state Treasurer Rob McCord, said he could support making the income-tax system more progressive but only after ruling out other more politically feasible steps to raise money, such as a gas drilling tax and closing tax loopholes.

“Any general increase in a tax burden should be a last resort, not a first conversation,” he said.

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