Residents and state lawmakers across the country are pushing back against anti-tax measures and looking for ways to raise additional state revenue in progressive ways. These efforts respond to the imminent danger federal policy, including a “reconciliation” bill under consideration by the U.S. Senate poses to federal funding for states.
States are combatting the potential for a significant loss in revenue in different ways. Of the states profiled by the Institute on Taxation and Economic Policy, three are most relevant to Pennsylvania. Like these three states, Pennsylvania needs to continue a transition to equitable school funding while also preparing for lost federal funding in many parts of the state budget, especially for Medicaid. Facing similar concerns, House members in Minnesota released a bill that would make up for potential lost Medicaid funding from the federal government by adding a new tax bracket for millionaires. Maryland Governor Wes Moore has now signed into law a bill that seeks to close a state deficit with several progressive income tax changes. Residents up north in Anchorage, Alaska pushed progressive tax solutions to support at-risk education spending at a town hall meeting.
Pennsylvania lawmakers should take note. Maybe it’s finally the moment that Pennsylvania will have the courage to enact KRC’s proposed “Pennsylvania Fair Share” tax. This proposal would raise tax rates on the kinds of income that go to the rich, like dividends and capital gains, but lower taxes on the wages and salaries that go to regular people. One barrier to progressive taxation in Pennsylvania is a constitutional “uniformity clause” that many interpret as requiring Pennsylvania have only a flat income tax. In fact, however, Pennsylvania law as interpreted by the courts only require that taxes be “flat” (or uniform) on each “class” of taxpayers and kind of income. We can have different tax rates on income that goes mostly to typical families and income that goes mostly to rich people.
Currently, Pennsylvania’s taxation system is “upside down,” with low-income families paying a larger percentage of their income in state and local taxes than high-income families. This can be rectified by enacting the “Fair Share” tax, in either of the variations described below.
The last time we estimated the impact of the fair share tax (in 2023), we found that raising taxes on income from wealth to 6.5% (from the current 3.07%) and lowering taxes on wages and interest to 2.8% (also from the current 3.07%) would raise $2.68 billion in new revenue each year, three quarters of which would come from Pennsylvania’s top 5% of income earners. More than half of taxpayers (57%) would see their taxes go down and less than one fifth (17%) would see an increase.
A second variation of the fair share tax would raise the tax rate on income from wealth to 12% and decrease the tax rate on income from wages and interest to 1.9%. This would have raise $6.22 billion in 2023 (so more now) with nearly identical distributional impacts. Pennsylvania’s overall income tax rate on the top 1% would remain well below New York and New Jersey levels even with this tax rate of income on wealth of 12%.
Examining the impact on total income taxes paid by county, taxpayers in suburban Philadelphia would pay slightly more. Taxpayers in most of the rest of the state, especially lower-income rural areas, would pay slightly less. No wonder Republican lawmakers in both chambers are lining up to sponsor the fair share tax!
Pennsylvania would not be alone in enacting this type of legislation. Here’s a bit more detail from ITEP on developments in Minnesota, Maryland, and Alaska. (To get details on Louisiana and Colorado you need to go to the ITEP brief.) MINNESOTA House members have unveiled the “Protect Medicaid, Not Millionaires” Act, which would create a personal income tax bracket on single filers with incomes over $1 million and married filers over $1.66 million that would adjust based on the revenue needed to compensate for lost federal funding for Medicaid.
MARYLAND lawmakers passed a budget that includes $1.6 billion in tax and fee increases to help close the state’s $3.3 billion deficit. The overall progressive tax package includes two new brackets for high-income residents earning over $500,000 and $1 million a year, a 2 percent tax on capital gains for those earning over $350,000, a phaseout of the itemized deduction for those earning over $200,000, and tax increases on cannabis, sports wagering, and digital services. Governor Wes Moore signed the budget into law on May 20th, 2025.
Pennsylvania should follow in Minnesota and Maryland’s footsteps and enact a fair share tax, ensuring Pennsylvanians have access to vital services while closing the budget deficit and lowering taxes for hardworking Pennsylvanians. By acting now, Pennsylvania will be better prepared to deal with uncertain economic conditions and federal action.