Pennsylvania State Budget
Conservatives loathe government handouts. Liberals denounce special favors to corporations. One thing can unify these two sides: ending Pennsylvania’s budget-busting corporate welfare handouts.
The good news at the end of longest state budget impasse in 60 years is Pennsylvanians’ wallets were spared. The bad news? The governor developed and implemented a Lone-Wolf Doctrine that could continue into the 2016-17 budget season.
Governor Wolf claimed the 2015-16 budget could not be balanced without significant tax hikes. But there are two ways exist to close a budget deficit: raise revenue or cut spending. Lawmakers closed the projected budget deficit by spending less—$3.8 billion less.
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The Independent Fiscal Office (IFO) released a sober analysis of Gov. Wolf’s 2016-17 budget proposal. It examines the consequences of eight separate tax increases as well as a minimum wage hike. The 35-page analysis can be summarized in four major points.
1. Higher middle class taxes than New Jersey. The IFO produced hypothetical scenarios for families in 12 states to demonstrate the impact of the governor's 11 percent personal income tax (PIT) hike. A Pennsylvania family making $50,000 will pay higher taxes than the same family living in New Jersey and five neighboring states.
Proponents of a PIT hike emphasize the current rate is one of the lowest in the country. While true, it does not account for the fact that Pennsylvania's rate is among the highest for low-income families, and that the PIT does not exist in seven states.
2. The highest severance tax rate among major gas-producing states. If the governor gets his way, Pennsylvania’s gas industry would pay a 5.6 percent severance tax. The tax would be imposed in addition to the taxes gas companies already pay.
Supporters of a severance tax insist wealthy gas companies need to pay their “fair share.” But this punitive tax will also fall on people who depend on the natural gas industry for their livelihoods. A slew of jobs have already been lost as natural gas prices remain at 20 year lows.
3. The 10th highest state cigarette tax rate in the country. Philadelphia’s tax rate would be 2nd only to New York. Cigarette taxes affect a narrow population and garner more support than broad based taxes. However, cigarette taxes disproportionately affect the poor and encourage violence stemming from smuggling. In 2014, Philadelphia implemented a $2 tax on cigarettes. The tax drove Philadelphia residents to purchase cigarettes in nearby counties, which hurt small businesses in the city.
4. A minimum wage hike would erase nearly 30,000 job opportunities. The IFO predicts raising the minimum wage from $7.25 to $10.10 an hour would boost the incomes of some workers. However, the new mandated minimum wage would also force layoffs and slow hiring.
Everyone wants to reduce poverty, but forcing businesses to increase wages will harm the very people the policy is intended to help. Those with little work experience or education will find it more difficult to land that first job. For example, teenage unemployment rates are consistently higher in states with higher minimum wages.
All of Governor Wolf's proposals have one thing in common: They concentrate more money and power in Harrisburg. Yet, job growth and economic prosperity come from innovative people in the private sector, not from a large and removed state government.
Late on Friday afternoon, Gov. Tom Wolf quietly announced the fiscal code will become law without his signature. This significant development closes the door on a tumultuous year of state budget politics—and represents an important victory for public and private school children.
Just last month Wolf opted to veto the fiscal code, which included a fair funding formula for education spending, language authorizing businesses to receive tax credits for their donations to private school scholarship organizations, and state funding reimbursing school districts for construction and renovation costs.
Lawmakers responded to the governor's veto by passing a stripped-down version of the fiscal code—this time with strong bipartisan support and veto-proof majorities. Apparently Wolf saw the writing on the wall and decided to refrain from yet another veto.
Thanks to passage of the fiscal code, education spending above 2014-15 levels will be distributed through a rational formula that accounts for student enrollment. This formula includes recommendations presented by CF in testimony to the Basic Education Funding Commission.
Ideally, the formula would apply to the entire Basic Education line item—not only the new education spending—but the fiscal code remains a step in the right direction. Certainly, the formula is an improvement over Wolf’s preferred funding scheme which funneled millions to Philadelphia, Chester-Upland, and Wilkinsburg at the expense of 423 other districts.
Further, the finalized fiscal code allows businesses that made donations to the state’s popular scholarship tax credit programs to utilize their tax credits in either 2015 or 2016. Recall that last year the Wolf administration put a freeze on the scholarship programs—claiming student hostages and causing confusion for participating businesses. The technical amendment in the code will reduce administrative headaches for businesses and allow more students to receive scholarships.
A no-tax increase state budget, combined with a fiscal code that protects students, is a crucial victory for families and businesses in the commonwealth.
As Pennsylvania inches closer to another budget battle, you’re likely to hear the term “structural deficit” used more often.
The term is defined as a multi-year shortfall between projected spending and revenue figures. Projected is emphasized because neither the spending or revenue figures are set in stone. They are estimates from the Independent Fiscal Office (IFO) that assume lawmakers make no changes to state programs.
The IFO estimates assume state government will carry over all spending from the prior year. They also include new costs associated with inflation, public employee compensation, and an increase in the service population.
Essentially, the IFO produces estimates for a budget running on autopilot. No extensive review of programs exists on an annual basis. How can working Pennsylvanians be expected to pay higher taxes when state budgeting permits spending to grow largely unchecked?
Moreover, tax increases could prove counterproductive. They may exacerbate Pennsylvania’s already high tax burden, thereby hindering job growth and driving more residents out of the state.
Fewer taxpayers depress revenue collections, making it harder for lawmakers to balance the state’s books—especially if spending programs are left unreformed. Just ask residents of New Jersey, who are now facing a budget deficit simply because one wealthy individual moved out.
To avoid this nightmare scenario, a rigorous review of the nearly $76 billion state budget is needed. CF has already identified a list cost-savings measures which would redesign government to help keep state and local budgets in balance.
Government must utilize every dollar it has before taking more from taxpayers. Anything less would be a disservice to the people who work hard everyday to make sure their own budgets are balanced.