PA Democrats propose taxing tobacco products, eliminating business tax deductions to fund education


WE HAVE A PLAN: State senators unveiled their education funding proposal in Philadelphia on Thursday.

By Maura Pennington |

PHILADELPHIA — New taxes on tobacco products and the elimination of tax breaks for some large companies are part of a Democratic plan to generate $1.1 billion in revenue and savings for Pennsylvania next year.

In advance of Republican Gov. Tom Corbett’s budget announcement next week, Democratic state senators on Thursday unveiled a plan to direct at least $300 million in new funding towards education. The additional funding can be generated without broad-based tax increases, they promised.

Their proposal features 10 policy ideas ranging from expanding Medicaid, which would bring federal dollars back into the state, to ending the pension double-dip for charter schools.

“There’s nothing in there adventurous. All very simple things,” said Sen. Vincent Hughes, D-Philadelphia.

But it’s not all good news for taxpayers.

A tax on tobacco products is expected to yield a $36 million boost in revenue. Moreover, according to the Democratic state senators, the “additional tax may result in healthy behaviors that will save more.”

Pennsylvania is one of the few states that does not tax smokeless tobacco products like chewing tobacco. The state also does not tax cigars and has lower excise rates for cigarettes than neighboring states like New York.

“It’s accepted practice,” said Hughes, referring to other states’ taxes on tobacco.

In other words, it’s money for the taking.

The plan also includes a freeze on the phase-out of the capital stock and franchise tax, which is paid by businesses on the value of physical assets they cannot sell.

Rather than end this tax as planned in 2015, it would be kept in place, adding $75 million to the Democrats’ savings proposal.

The phase-out of the tax, which is particularly loathed by the business community that sees it as double-taxation on goods they purchase, has been put on hold several times since it began more than a decade ago.

Last July, the Corbett administration agreed to a one-year freeze of the phase-out in order to generate an additional $58 million in the budget.

The senators also account for $45 million in budget savings by eliminating the vendor sales tax discount for “larger merchants,” though small businesses would be exempt. The discount allows businesses to keep a percentage of the sales tax revenue they collect on behalf of the state.

As for how they want to spend that money, Senate Democrats are pressing hard on an issue at voters’ hearts — their children’s future. They want to use at least $300 million in new revenue to fund education.

In part, the plan puts $50 million toward tutoring and $40 million toward early learning.

Corbett is scheduled to make his budget announcement on Feb. 4. There are only 23 Democrats in the state Senate, but they are poised to push back on any cuts to schools. Republicans hold the majority with 27 members.

“It is clear that this administration from day one has lost interest in public education,” said Sen. Larry Farnese, D-Philadelphia.

Republicans argue that further education cuts are not on the agenda, and early indications are that Corbett will call for increased funding for schools.

“There’s no reason to expect anything other than an increase in education funding. The only real question is how much will the increase be,” said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-Chester.

Contact Maura Pennington at and follow her on Twitter @whatsthefracas.

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