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Explainer: The history behind Pennsylvania’s flat income tax

The state Supreme Court has ruled that a graduated income tax, with rates that increase as someone’s income rises, would violate the state constitution. Here's why.

Pennsylvania State Capitol building in Harrisburg on July 26, 2023.

This news article was written by Charlotte Keith of Spotlight PA, an independent, nonpartisan newsroom powered by The Philadelphia Inquirer in partnership with PennLive/The Patriot-News, TribLIVE/Pittsburgh Tribune-Review, and WITF Public Media. Sign up for Spotlight's free newsletters.

Unlike most states and the federal government, Pennsylvania has a flat income tax.

The state Supreme Court has ruled that a graduated income tax, with rates that increase as someone’s income rises, would violate the state constitution.

The same goes for all state and local taxes in Pennsylvania, beyond limited constitutional exemptions, including special tax provisions for those deemed in need on the grounds of “age, disability, infirmity or poverty.”

Why?

The answer lies in the late 19th century, when Pennsylvania rewrote its constitution for a fourth time.

The first three versions of the state constitution had little to say about taxes, and left those decisions up to the legislature.

But by November 1872, as delegates from across Pennsylvania gathered in Harrisburg for a constitutional convention, things had changed.

Reform was in the air. Mounting state debt, issued to support industrial development, foregrounded questions about how to divide up the tax burden. Public resentment had been growing for years at the power wielded by large corporations, particularly railroads, and the special treatment they received from the state legislature, where corruption was rampant.

Among the proposed additions to the constitution was a deceptively simple provision about taxes, which was approved without debate.

In years to come, the uniformity clause of the state constitution would be defended and denounced while becoming a linchpin of Pennsylvania tax law. “No provision in our constitution has been so much litigated yet so little understood,” according to a 1967 state Supreme Court opinion.

The new constitution, which went into effect in 1874, placed limits on the legislature’s taxing ability.

Despite the name, the uniformity clause doesn’t say that everyone must be taxed the same. It requires that taxes be uniform “upon the same class of subjects.” In other words, things that fall into the same category must be taxed the same; different things can be taxed differently.

State courts have generally deferred to the legislature on where to draw those dividing lines, said Richie Feder, an adjunct law lecturer at the University of Pennsylvania who previously worked as a top attorney for the city of Philadelphia.

As a result, restaurant food can be taxed differently than groceries, natural ice can be taxed differently than artificial ice, and the same products can be taxed differently depending on whether they’re bought from a convenience store or a vending machine.

The uniformity clause doesn’t prevent Pennsylvania from offering tax breaks to boost certain industries. Pennsylvania has tax credit programs for waterfront development, film production, and startups located in special zones near universities, to name just a few.

There is one kind of difference, though, that the state Supreme Court has firmly rejected as a basis for different tax rates.

‘The tax burden should be borne equally’

In the spring of 1935, Gov. George Howard Earle, a Democrat, declared to state lawmakers that times had changed since 1874 and state taxes needed to catch up. Pennsylvania’s wealth was no longer mostly bound up in real estate; more than half was held in stocks and bonds and other forms of personal property. But only a tiny fraction of local tax revenues came from taxes on personal income, while homeowners and farmers were being crushed by property taxes, he said.

“I am for the American principle of fair play — which means an honest distribution of the burden of taxation between the rich and the poor,” Earle said. “The soundest tax is that based on the principle of the ability to pay.”

Intended to help pay for public schools and reduce the property tax burden, the proposed income tax would levy higher rates on higher earners, setting up a showdown with the state Supreme Court.

After the state legislature passed the income tax, the court promptly struck the law down, arguing that a tax imposed at different rates on the same kind of income “solely on the basis of the amount of income received” violated the uniformity clause.

That interpretation has held sway since.

The state Supreme Court of the 1930s was extremely conservative and hostile to taxation in general, Feder said. If the current state Supreme Court considered the question of whether the uniformity clause allows graduated taxes, starting fresh, they’d likely come to a different interpretation, he said. “But they’re stuck with this historical conservatism that led to these stringent precedents.”

Most state constitutions contain uniformity clauses in one form or another. Some use language identical to Pennsylvania’s. But Pennsylvania’s strict interpretation that the uniformity clause prohibits a graduated income tax makes the state an outlier, according to a 2011 report by a commission created by the state Bar Association to review the constitution.

Of 48 states with uniformity requirements in their constitutions, courts in only four, including Pennsylvania, have reached similar interpretations, the report found.

While some states have amended their constitutions specifically to permit a graduated income tax, attempts to roll back Pennsylvania’s uniformity clause have not been successful.

Constitutional amendments to allow a graduated income tax failed by a razor-thin margin in 1913, and, more decisively, in 1937, when it was bundled together with a broadly unpopular change to property tax exemptions. Between 1921 and 1953, voters repeatedly rejected proposals to hold another constitutional convention, motivated in large part by opposition to a graduated income tax, according to a 1960 law review article.

In 1959, a constitutional reform commission declined to recommend changing the uniformity clause to allow a graduated income tax, saying that it would be “bitterly contested.” Dissenting members of the commission compared the clause to “shackles” preventing the legislature from passing “modern and adequate tax legislation.”

In 1967, the state law calling a referendum on whether to have a constitutional convention explicitly stated that the convention could not make any changes to the uniformity clause.

The state Supreme Court has also interpreted the uniformity clause to mean that commercial and residential property may not be taxed at different rates. As a result, local governments can’t raise tax rates on warehouses or office buildings without also increasing them for homeowners.

While changes to the uniformity clause appear unlikely, the prevailing interpretation remains hotly contested.

“The paramount tenet” of the uniformity clause, according to a 2017 state Supreme Court decision, is that “the tax burden should be borne equally by all those who are obligated to pay a tax.”

But while the drafters of the uniformity clause clearly intended to curb abuses of tax law by the state legislature, there is “no indication as to whether the convention really intended to prohibit all forms of graduated taxes upon income and inheritances,” wrote historian Rosalind Branning.

Critics argue that a provision intended to make Pennsylvania’s taxes fairer has, ironically, had the opposite effect.

“The proposal originally designed to stop the state from helping the very rich and corporations now, in fact, protects them,” said Marc Stier, executive director of the Pennsylvania Policy Center, a progressive think tank.

BEFORE YOU GO … If you learned something from this article, pay it forward and contribute to Spotlight PA at spotlightpa.org/donate. Spotlight PA is funded by foundations and readers like you who are committed to accountability journalism that gets results.

Companies: State of Pennsylvania

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