Pennsylvania State Budget
Governor Wolf marked his 100th day in office by providing a list of accomplishments. In reality, the memo is more of a status update since many of his initiatives, including the natural gas tax and his budget proposal, are a long way from passage.
But the real question is not what the governor accomplished in an arbitrary 100 days, but what he can do over the next 1,360 days to improve the lives of Pennsylvanians. Here’s a few suggestions based on the governor’s goals for Pennsylvania:
Protect taxpayers to foster "jobs that pay."
Elected officials should pass the Taxpayer Protection Act (TPA) to protect the middle-class from reckless spending and tax increases. The TPA limits future government spending to inflation plus population growth. Reining in government spending is critical to creating an economic climate that attracts jobs—and working Pennsylvanians deserve a government that lives within its means.
Put students first to build "schools that teach."
Our education system is broken. From the commonwealth’s senseless funding formula, to wasteful mandates like prevailing wage, to the need for more school choice, there are many ways for the governor to create an education system that truly serves students. Gov. Wolf should work with the legislature to create a funding formula where dollars follow the students, repeal prevailing wage and remove obstacles to greater school choice, such as creating alternative authorizers for charter schools.
Enhance transparency and accountability to create a "government that works."
The lack of transparency in Harrisburg and special privileges enjoyed by select groups have created a system ripe for corruption and abuse. In his next 1,360 days, Governor Wolf has an opportunity to continue promoting transparency by opening the closed-door union contract negotiation process and ending the government unions’ unique privilege of using taxpayer resources for partisan politics.
These reforms are by no means exhaustive, but they would move our state in a pro-growth direction after years of profligate spending, which have failed to revive our historically weak economy. After decades of focusing on finding more revenue for state coffers, it’s time to restrain excessive government and transform Pennsylvania into a state of opportunity again
Imagine a little girl and her young mother sitting on a porch on 19th Street in Harrisburg. The child smiles happily, but the mother looks tired—she’s working second shift and raising a daughter by herself. The father has never played a role in the girl’s life, but she has loving grandparents doing their best to support and care for the child and mother.
It could be a page from the lives of thousands of working-class, ethnically-mixed families—but it happens to be from my own. I was that little Puerto Rican/Slavic American girl growing up with the odds stacked against me. That was my mother gritting her teeth and getting by so that I could have a chance to thrive.
Politicians constantly give lip service to helping families like mine, but I've found that their solutions often do more harm than good.
Given my life experience, it surprises me when people promote government intervention to address issues like income mobility, job growth, and public education. Throwing taxpayers’ hard-earned money at these problems will not make them go away. Taxing and spending is not a recipe for creating jobs or helping middle-class—or working class—families.
When I worked through college and subsisted on a diet that included way too much Ramen, a tax on textbooks would have been a substantial burden. Not to mention the impact that taxes on everything from child care to non-prescription drugs to nursing home care would have on the rest of my family.
It may not seem like a lot of money to high-income households, but in working-class and minority communities struggling to make ends meet, every cent counts.
It's time we entrusted Pennsylvanians to make their own choices with their own money.
That's why I came to work at the Commonwealth Foundation, which points out how a vibrant, free economy can enable individuals to reach their full potential regardless of color, class, or creed.
Unfortunately, some will resort to ad-hominem attacks of racism, bigotry, sexism, and classism to promote their government-based solutions. They rely on name calling because they are unable to justify policy perspectives that so clearly hurt the worst off among us.
Let's be clear, there is nothing racist or divisive about empowering people to create success on their own terms. There is no place that one can point at to claim that poverty was taxed or spent out of existence.
Struggling communities in Pennsylvania are better equipped to make spending decisions about their own personal needs than politicians. If we want a brighter future for our commonwealth, we need state government to do less so that we are free to do more in our local communities and in our own families.
The Independent Fiscal Office (IFO) released a new analysis of Gov. Wolf's tax proposals yesterday. What is their most interesting conclusion? Taxpayers in every income bracket will see a net tax increase.
The table below breaks down the incidence of tax changes by 2018-19, the first full fiscal year in which all of Wolf's proposals would be in effect.
|Tax Incidence for Pennsylvania Residents, FY 2018-19|
|Net tax increase by household income under Wolf proposed budget, in millions|
|Under $25,000||$25,000-$49,999||$50,000-$74,999||$75,000-$99,999||$100,000-$250,000||More than $250,000|
|Sales and Use||$367||$616||$606||$512||$1,283||$721|
|Corporate Net Income||-$25||-$45||-$41||-$35||-$87||-$75|
|Net Severance tax||$44||$56||$47||$34||$60||$23|
|Source: Independent Fiscal Office: http://www.ifo.state.pa.us/resources/PDF/Revenue_Proposal_Analysis_April2015.pdf|
The IFO offers another look at tax incidence excluding tobacco taxes—which impose a significant burden on lower-income households. If, for whatever reason, you wanted to exclude an analysis of the burden of tobacco taxes, the lowest income group (households earning less than $25,000) would see a net tax reduction, but taxpayers in every other income category would still see a net tax increase.
That is, middle class families will pay more, even after Wolf's promised property tax reductions.
This finding shouldn't be surprising. As we noted, using Gov. Wolf's own revenue projections, only 30 cents of every dollar collected in new state taxes during the first two years of the plan go to property tax relief. Even if we ignore the tax implications of the governor's first budget, in which families will pay higher state taxes before seeing any property tax reduction, Wolf's tax shift proposal raises twice as much revenue in new state taxes than it provides in school tax relief.
It should also be noted that Wolf's tax shift provides an arbitrary system of doling out money to school districts. The amount of money your family could get in property tax relief depends—with quite dramatic differences—on where you live.
The IFO analysis delves specifically into the unique case for Philadelphia. Under Wolf's plan, Philadelphia, unlike any other school district, would see a reduction in its local cigarette tax, sales tax and wage tax along with property tax reductions.
Gov. Wolf has been trying to sell his budget by making a remarkable claim: Everyone will receive these great benefits, but only the wealthy will have to pay for them. The IFO analysis demonstrates otherwise. Not only will the wealthy pay, but low-income and middle class families alike will be hit hard under the governor's plan.
In the face of Governor Wolf’s proposed $4.5 billion tax increase, a group of Senate lawmakers are offering an alternate vision for Pennsylvania—one of limited government and economic prosperity.
Today, the Senate Finance Committee passed two versions of Taxpayer Protection Act legislation. Senate Bill 70, an amendment to the state Constitution sponsored by Sen. Camera Bartolotta, and Senate Bill 7, sponsored by Sen. Mike Folmer, are now eligible for a vote by the entire chamber. These bills protect middle-class Pennsylvanians from reckless spending and tax increases.
The Taxpayer Protection Act achieves four goals:
- Limits the future growth of government spending to inflation plus population growth
- Requires state government to prioritize future spending
- Establishes a Rainy Day Fund to help balance the budget during economic recessions
- Provides tax relief for working families
On several occasions, Gov. Wolf has urged his fellow citizens to, “please come with your own ideas. It’s not good enough to just say no and continue with the same old, same old.” The Taxpayer Protection Act would set the state on a new course.
Working Pennsylvanians deserve a government that lives within its means. They deserve to keep the fruits of their labor.
Read more about the Taxpayer Protection Act.
Is placing 39 out of 50 in any competition acceptable? Most people would say no, which is why a new index published by the American Legislative Exchange Council (ALEC) is so unsettling.
Released on an annual basis, the Rich States, Poor States index ranks states based on their economic performance and economic outlook. In the first category, Pennsylvania performed poorly, ranking 39th. Future economic performance doesn’t look promising either. The authors of the index place Pennsylvania in the bottom ten at 41.
The rankings are based on fifteen different variables that include tax rates, debt service as a share of tax revenue, labor regulations, and tax or expenditure limits. Pennsylvania ranks poorly in nearly all of these areas year after year. As Jana Benscoter of Watchdog points out, Pennsylvania’s economic outlook ranking has never been higher than 33rd.
This isn’t surprising given the dramatic growth of government spending and taxation since 1970 and Pennsylvania’s inhospitable regulatory environment, both of which are roadblocks to job creation and prosperity.
But Pennsylvania doesn't have to continue down this path. If the commonwealth lowers the tax burden on businesses and families, restrains spending growth, and fixes its regulatory climate, we can shed these low rankings and grow an economy that works for everyone.
We're at a watershed moment, with a choice between the largest tax hike in Pennsylvania's history or reducing government spending to leave more in the pockets of Pennsylvanians. It's a choice between prosperity or economic stagnation.
As odd as it might sound, some rural schools could actually be harmed by Gov. Wolf’s efforts to increase education funding by imposing a severance tax on natural gas.
At least one school superintendent sees Wolf's Education Reinvestment Act as more of a threat than a help.
Dr. Kenneth Cuomo, superintendent of the Elk Lake School District in Susquehanna County, says, “The concern is that the tax could be passed on to landowners in the form of post-production fees that are assessed against royalties paid by gas companies”
To address such fears, Wolf’s legislation does include a prohibition on directly passing on the tax to landowners or leaseholders. But Bill desRosiers, a spokesman for Cabot Oil & Gas, notes the prohibition would be contrary to the practices of other states. In the end, simple economics indicates companies will find other ways of passing along the cost of the severance tax.
According to Dr. Cuomo, that's bad news for Elk Lake, because royalties the district receives from three wells—nearly $2 million thus far—could decrease:
That’s revenue for the district and losing it would require us to increase taxes to keep our buildings afloat.
Most of the people who make these proposals don’t live north of Interstate 80 (where much of the state’s gas is produced) and don’t understand their impact.
Apart from skimming royalties from landowners and the school district, the severance tax proposal would diminish the ability of companies to support schools in other ways—such as $50,000 worth of pipe Cabot Oil & Gas contributed to the Susquehanna County Career and Technology Center.
“The pipe was enough to supply our welding program for three years,” reports Dr. Alice Davis, administrative director of the center, which serves up to 500 pupils from seven school districts, along with 200-300 adult students. “Without that contribution, our taxpayers would have had to pay for the pipe.”
Schools being harmed by a natural gas tax is just one of the many unintended consequences of the governor’s education proposals. His approach takes more from the pockets of Pennsylvanians without addressing reforms that can impact the classroom performance far more than money ever could.
Spending more wisely, not just spending more, is the real solution.
School districts that receive the most in state funding today would also be the biggest winners under Gov. Tom Wolf's proposal for property tax rebates. Gov. Wolf’s proposed tax shift fails to deliver universal property tax relief, creates winners and losers (mostly losers) among school districts, offers no guarantee of lower property taxes, and creates an unfair system of doling out state money unrelated to tax burdens.
Our most recent policy brief takes a look at Gov. Wolf's proposed property tax shift, part of his 2015-16 budget proposal. As we've noted, Wolf's plan would not provide property tax relief for at least one year after state taxes go up, and only 30 cents out of every dollar in new state taxes would go towards property tax relief in the first two years.
Moreover, Wolf's plan results in a net tax increase of around $1,400 per family of four, both next year and again in 2016-17 after the plan is fully implemented.
A separate analysis from the House Republican Appropriations Committee finds that 80 percent of school districts would be "losers" under this shift. That is, residents would pay more in sales and income tax increases than the district would get for property tax rebates. This analysis doesn't even consider that tax rebates would occur one year after tax increase, or the other state taxes Gov. Wolf is proposing to raise.
Our new analysis finds:
- Across the state, the disparity in property tax relief under Gov. Wolf’s proposal varies widely. Based on current homestead exemptions, school districts would receive between $301 and $5,209 per homeowner.
- The top 20 districts would get an average allocation of $2,860 per homeowner. The bottom 20 would get an average of $477 per homeowner.
- The redistribution favors districts that currently receive most of their funding from state taxes, while districts getting the least relief currently raise more than 60 percent of their funding from local taxes.
- Philadelphia would receive some property tax relief, along with reductions in the city's wage tax, sales tax and elimination of the local cigarette tax—essentially exempting Philadelphia residents from the statewide tax increase.
Last week, CF President & CEO Matthew Brouillette appeared on PCN’s Call-In Program with Steve Herzenberg, the Executive Director of the Keystone Research Center, to discuss Gov. Wolf’s costly budget proposal. While Herzenberg defends Wolf’s budget proposal, Matt points to some of the hard realities it will bring to every family in Pennsylvania.
Even though Gov. Wolf campaigned on a promise to not raise taxes on middle class families, his budget proposal would hit them with the largest tax increase in the state’s history.
In attempt to soften the blow of this broken promise, Gov. Wolf wants to implement property tax rebates. Matt explains that even this will fail to help Pennsylvanians since, over the next two years, less than $0.30 of every dollar in new state taxes will be used for property tax rebates.
Rather than put a heavier burden on Pennsylvania’s taxpayers, Matt explains that the government’s focus should be on “creating opportunities for everyone and reduc[ing] the burden of entry into the workplace and the middle class that are trying to grow businesses.”
Watch the full discussion on PCN’s Call-In Program.
During the gubernatorial campaign, Tom Wolf promised not to raise taxes on middle class Pennsylvanians. Despite this promise, the governor proposed a budget including the largest tax increase in the commonwealth’s history—a tax increase sure to hit Pennsylvanians of all income levels.
Under Gov. Wolf’s plan, taxes on income, sales, energy, tobacco, banks, and lottery winners would soar. Additionally, Gov. Wolf plans not only to increase the sales tax, but expand the list of items taxed under the higher rate.
To illustrate how Gov. Wolf’s proposal would leave Pennsylvanians with less, we applied his 6.6 percent sales tax increase to a fraction of the 45 newly taxed items under his plan. A single mother sending her child to daycare, a senior, like Kermit Bell’s mother, who relies on home care for her dementia, and a college student trying to further his or her education will all be hit under this sales tax increase.
Here are just five scenarios whereby Pennsylvanians could pay more to cover the gigantic increases in state spending:
- The average college student, who generally does not have a lot of disposable income, could pay approximately $79 more in taxes when purchasing textbooks.
- A family who has an infant in day care would see approximately $746 annually in new taxes on day care services.
- Making funeral arrangements is never easy, but under Gov. Wolf's plan, grieving families would have it a bit harder as they may need to figure out how to cover $465 in additional taxes on funeral services.
- The governor's proposal would hit those those currently living in a nursing home the hardest. If the sales tax were applied to the average cost of nursuing home services, it could increase the price by $6,890 per year.
- If families opted to have a loved one cared for at home, the tax bill on home care services could reach $3,020 annually.
Here is a list of the goods and services that would now be taxed under Gov. Wolf's proposal, as outlined by the Pennsylvania Department of Revenue:
Motion and Video Pictures
Financial Investment Activities
Real Estate Agent and Broker Services
Business Support Services
Travel Arrangement Services
Other Support, Office Administrative,
and Facilities Support
Home Health Care Services
Other Ambulatory Health Care Services
Nursing and Residential Care Facilities
Museums, Historical Sites, and
Amusement and Recreation Industries
Recreational Vehicle Parks and Camps
Personal Care Services
Death Care Services
Dry-cleaning and Laundry Services
Other Personal Services
Specialized Design Services
Scientific Research and Development Services
Professional Services, Architectural, Computer
Candy & Gum
Personal Hygiene Products
Caskets & Burial Vaults
Catalogs & Direct Mail Advertising
Construction of Memorials
Uniform Commerical Code Filing Fees
Investment Metal Bullion and Gold
While the governor insists property tax relief would ease the burden of his tax increases, the relief would not arrive until a year after the tax increases kick in, if at all. This sales tax increase and expansion is projected to take $1.6 billion out of the private economy next year and nearly $4 billion per year when fully implemented.
In addition to stunting economic growth, this tax increase would directly affect the standard of living for Pennsylvanians, as a larger percentage of their incomes would be devoted to paying higher taxes, leaving fewer dollars for their own needs.
This isn’t what Gov. Wolf promised during the campaign.
One third of the $675 million in new corporate welfare under Governor's Wolf budget proposal is reserved for alternative energy programs. In this week's House budget hearings Community & Economic Development Secretary Dennis Davin defended the new borrowing saying,“We think when you look at those opportunities as a whole ... Pennsylvania will do much better.”
But history indicates otherwise.
A common target of Gov. Rendell's "economic development" schemes was alternative energy companies, who enjoyed $1 billion in renewable energy grants, tax breaks and loans, but only created 8,300 "green" jobs, costing taxpayers over $120,000 per job. In other words, using tax dollars to subsidize green jobs resulted in a net loss.
Worse yet, taxpayers don't have the funds for this program. The Governor wants to borrow the money and pay it back with natural gas severance tax revenues.
Even if placing more debt on Pennsylvania families created jobs, it is still wrong to ask the natural gas industry to subsidize their competitors. Kevin Sunday with the PA Chamber put it well, "It's very ironic that Gov. Wolf expects one industry to subsidize its competitors," he said. "We certainly shouldn't be picking winners and losers."
At the end of the day, Pennsylvania has given more than a billion dollars to alternative energy companies with nothing to show for it: from 1991 to 2014, our state ranked a dismal 45th in job growth. Handing out tax dollars based on political calculations is stifling economic progress. Common sense tells us it's time to try a different approach—letting Pennsylvanians keep more of their money.
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