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Wolf's plan to reduce local school taxes would rely on higher income tax targeting wealthy

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PHILADELPHIA — Democratic gubernatorial candidate Tom Wolf would make a centerpiece of his first budget proposal an increase in income taxes on Pennsylvania's higher-earners to help expand the state's share of public education funding in exchange for a dollar-for-dollar reduction in local property taxes levied by school boards.

In an interview with a panel of Associated Press reporters and editors Friday afternoon, Wolf sought to cast the exchange — several billion dollars a year — as a redistribution of burdens within Pennsylvania's nearly $30 billion state public school system. Wolf's goal would be to raise the state's share of public school costs to 50 percent; it currently pays about one-third, while property taxes shoulder more than 40 percent.

The reliance on local taxes to finance Pennsylvania's public schools has almost reached a crisis point, Wolf said.

"There is a real passion for property tax relief," Wolf said. "We have gone well beyond what I think the local property taxpayer should pay to support public education, and so we need to reduce that, and that means that the state should take a bigger share of responsibility."

Wolf, who is challenging Republican Gov. Tom Corbett in the Nov. 4 election, said any increase in state funding for schools would hinge on a reciprocal reduction in property taxes that he would make mandatory.

"The legislation would have to say that property taxes have to be reduced in lockstep with the increment that comes from the state," he said.

If elected, Wolf's first budget proposal to the Legislature would be due in early March.

Wolf's plan to reshuffle school funding would accompany his proposed overhaul of the 43-year-old income tax. It would be his intent, he said, to use this new income tax structure targeting higher-earners as an essential way to shift a portion of public school funding away from property taxes.

His plan would shift more of the financial burden onto wealthy taxpayers, reduce taxes for the middle class — a category he says includes households with taxable incomes of roughly $70,000 to $90,000 — and exclude more lower-income households from the tax.

PHOTO: Pennsylvania Democratic gubernatorial candidate Tom Wolf speaks during an interview with The Associated Press Friday, July 25, 2014, in Philadelphia. Wolf would make a centerpiece of his first budget proposal an increase in income taxes on Pennsylvania's higher-earners to help expand the state's share of public education funding in exchange for a dollar-for-dollar reduction in local property taxes levied by school boards. (AP Photo)
Pennsylvania Democratic gubernatorial candidate Tom Wolf speaks during an interview with The Associated Press Friday, July 25, 2014, in Philadelphia. Wolf would make a centerpiece of his first budget proposal an increase in income taxes on Pennsylvania's higher-earners to help expand the state's share of public education funding in exchange for a dollar-for-dollar reduction in local property taxes levied by school boards. (AP Photo)

He would do it by combining a "universal exemption" — an income amount below which all households are not taxed — with a flat percentage tax to incomes above that. The new flat percentage tax would be higher than the 3.07 percent at which it is currently set.

"I'm looking at it from the point of view of fairness. I think people like me should pay more. I think people who are starting out, building a business, starting a family, should pay less," Wolf said.

Wolf, a wealthy businessman from York County, sank $10 million of his own money into a TV-heavy Democratic Party primary campaign that helped him win a four-way race in the May 20 election.

Wolf declined to provide additional details about his proposed overhaul of the roughly $12 billion-a-year income tax. Wolf, a state revenue secretary under former Gov. Ed Rendell, said he cannot determine where he would set the exemption or tax rate before the election because he lacks the Department of Revenue's up-to-date information about state taxpayers.

Wolf has also proposed other ways to collect more money for public school funding and the state treasury, including by imposing higher taxes on the booming natural gas industry.

Property tax relief remains an elusive goal in Pennsylvania, much discussed in the Capitol for more than a decade but so far only delivered in doses that are quickly swallowed by the schools' growing costs.

Rendell, a Democrat, took office in 2003 with the same goal as Wolf of increasing the state's share of public education to 50 percent. Rendell raised it from 34 percent to nearly 40 percent — after raising income taxes and taxing the newly legalized casino gambling industry — during his two terms, but it has dropped since Corbett took office in 2011.

Corbett pushed for and signed a 2011 law that put tough new restrictions on school boards' ability to raise property taxes. In his re-election campaign, he is emphasizing the need for reductions in the cost of public pensions that he blames for rising property taxes.

Asked how he expects to sell his education-funding proposal to the Republican-controlled Legislature, Wolf said support is already strong for pending bills to replace property taxes altogether by increasing state tax rates on income and sales.

"These are conservatives in the Legislature," he said. "They're coming up with some pretty huge increases in other state taxes, and that seems to be very popular among a big section of the population."

Wolf, however, does not support an increase in sales taxes, saying he views it as falling too heavily on lower-income consumers.

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