What you should know about Gov. Tom Wolf's proposed state income tax hike

HARRISBURG, Pennsylvania (WPVI) -- Pennsylvania Governor Tom Wolf presented his budget proposal for fiscal 2021-22 on Wednesday, a $37.8 billion spending plan.

But what is attracting most of the attention is Wolf's request for a major hike in the state income tax in efforts to produce an additional $4 billion in revenue.

Much of the money would be earmarked for a massive spending increase for public education, including an effort to make the funding formula more equitable throughout the state.

The proposal faces immediate opposition from Republicans in the GOP-controlled Legislature in its current form. Wolf's plan will affect most people, but how it will impact your household will depend on how many people live in the home and your income.

RELATED: Read more about Governor Wolf's budget proposal

"I want to help working families get ahead by reducing their taxes," said Governor Wolf during a virtual address in Harrisburg.

Wolf's proposal provides tax forgiveness or relief to lower-income Pennsylvanians.

It would reportedly provide about 40% of state tax filers a net tax cut.

"If you're married with two kids, and you earn less than $84,000 per year, I suggest we give you a tax cut," he said.

The governor said it is an effort to create a more equitable system by moving away from the state's existing flat tax rate. But in so doing, he has also proposed the largest increase in the state personal income tax ever from 3.07% to 4.49%, starting in July.

"It's a $3 billion tax increase," said Nate Benefield of the Commonwealth Foundation. "Middle class families are going to face a tax increase as a result of this proposal."

Households of four who bring in more than $84,000 a year would see their tax bill increase. For some, it would represent a 46.3% increase in the state's personal income tax rate and that includes the vast majority of small businesses who pay their business taxes at the personal income tax rate.

"The governor's proposal to hike, that means that 92% of small businesses would see that increase of 46%," said Gordon Denlinger of the National Federation of Independent Business.

Many owners said it is a hike that will put them over the edge and force them to shut their doors.

"As we all know, small business has been hit so hard during this pandemic, particularly our restaurants and hospitality sector," said Denlinger.

The governor's budget proposal does also call for $145 million to immediately help struggling businesses get through the rest of the pandemic.