During February 2021, Gov. Tom Wolf announced his proposed budget for the 2021-22 fiscal year, which would increase spending by nearly $3.8 billion, or 11.1%. The budget calls for some important changes to the commonwealth's tax system, which will be discussed below. Many of the proposed changes are not new; the governor has unsuccessfully attempted to pass a number of the proposed changes in previous years. For various reasons, each has been met with criticism, lobbying and eventual defeat. Will the result in 2021 be any different?

Increasing the Personal Income Tax Rate

Arguably the most unpopular pitch in the governor's proposed budget is an increase to the state personal income tax (PIT) rate from 3.07% to 4.49%, or a 46% rate increase. Of states that impose an income tax, Pennsylvania's PIT rate is one of the lowest in the country. Even at a rate of 4.49%, it would still be comparatively low. Yet, while at first blush Pennsylvania's PIT rate may seem low, when local tax rates are factored in, the rate is actually quite high. For instance, when consideration is given to those living in Philadelphia, the proposed combined state and local income tax rate would exceed 8%. Complaints run rampant about Philadelphia's Wage Tax—but would the state level increase be the final straw to push residents out of the city, adding a further blow to the city's finances?