HARRISBURG Plan seeks increase in income tax

If the legislation passes, the income tax would raise $700 million annually.
HARRISBURG (AP) -- After three days of private negotiations, the Republican-controlled Senate agreed to a deal with Democratic Gov. Ed Rendell that would increase the state income tax by nearly 10 percent to raise an additional $700 million a year, Senate sources said Wednesday night.
Rendell and legislative leaders spent much of Wednesday behind closed doors in the governor's official residence and the Statehouse to reach the agreement, which could end a nine-month impasse that has left Pennsylvania as the only state without a completed budget this fiscal year.
The deal was presented to the Senate rank and file Wednesday night.
A spokesman for the House Republican leader, Sam Smith of Jefferson County, said the deal would be presented to House Republicans today.
All sides were hoping for a deal that could be voted on this week.
Rendell's spokeswoman, Kate Philips, would not confirm a deal with the Senate but said, "We're getting very close, and we're hopeful that there will be an agreement by week's end."
Finances
Under the Senate deal, Pennsylvanians would see the income tax rise from 2.8 percent to 3.07 percent Jan. 1 to raise $700 million annually to help finance early-childhood education initiatives championed by Rendell, restore social-service cuts required to balance the budget in March, and avert a deficit, two Senate sources said, speaking on the condition of anonymity.
For a household with a taxable income of $50,000, the proposal would increase the state income tax by $135 a year.
An assortment of other new and higher taxes and fees -- such as a levy on the gross receipts of cell phone calls and a tax on most interstate landline calls -- would round out the spending, sources said.
The total amount of money that would be raised by the package was still being calculated Wednesday night, they said.
The talks were the third straight day of negotiations between Rendell and legislative leaders as pressure mounted for a deal nearly halfway into the fiscal year that started July 1. The discussions come after a stretch of six months in which the sides had not met in one room.
Lawmakers are eager to go home for the holidays, and many school districts have taken out loans to keep classrooms open since Rendell had held up state subsidies for public schools to get Republicans to consider his proposed education initiatives. Those initiatives include funding full-day kindergarten and preschool and reducing class sizes up to third grade.
The deal calls for releasing the $4.1 billion earmarked for basic state subsidies that has been withheld -- providing about 35 percent of district budgets statewide -- plus an increase to offset the effect of inflation, Senate sources said.
Senate Republicans, saying they objected to raising taxes during a period of job losses, blocked a compromise bill that Rendell struck with the House in October to raise the income tax to 3.25 percent, before rolling it back to 3.1 percent six months later. The Senate deal would provide $175 million for Rendell's learning initiatives, $25 million less than October's House bill. But the money would not be spent until next fiscal year.
Slot machines
If and when a budget deal is agreed to by all sides, bills to legalize and tax slot machines as a way to finance lower property taxes could be negotiated so that an entire package of bills are voted on at once, said Sen. Robert M. Tomlinson, R-Bucks.
Tomlinson, who has advocated legalizing slots to revive Pennsylvania's horse racing industry, said Rendell told him Wednesday that he did not want to raise the income tax without cutting property taxes, as he promised in his 2002 election campaign.