Tax Cuts To Blame for Pennsylvania’s Budget Deficit?

As we have pointed out in the past, Pennsylvania’s legacy of overspending has created a looming deficit, threatening to destroy our fiscal house.

Yet, some lawmakers and public officials have claimed the problem is that state taxes are too low. Last month, one of those officials, Pennsylvania Treasurer Rob McCord, released his analysis of Pennsylvania’s structural deficit, laying the blame on pensions and the phasing out of the Capital Stock and Foreign Franchise Tax (CSFT).

Treasurer McCord is absolutely correct in pointing to rising pension costs as one of the main reasons for Pennsylvania’s deteriorating fiscal health, but phasing out the CSFT has little to do with PA’s dire fiscal situation.

Put simply, Pennsylvania does not have a revenue problem. In fact, the Independent Fiscal Office projects state revenue will increase to record levels, growing by $4.9 billion in the next five years.

The real problem is spending. Driven primarily by pensions and welfare, state spending will grow by an estimated $6.3 billion over that same time frame. Moreover, our state deficit will grow as the additional spending outpaces revenue growth.

The CSFT—which was supposed to be “phased-out” by 2009, but has been extended many times over—is now expected to be eliminated in 2016. If the tax had been frozen, it would have generate an estimated $390 million this year.

Pennsylvania Budget Deficit CSFT

Pennsylvania—already suffering under the 10th highest tax burden—cannot tax away its spending problem. To fix the state’s finances and place Pennsylvania on the path to prosperity, real spending and economic reform is needed.