Pennsylvania State Budget
In 2013, I opened my first business. I’d overcome many challenges and assumed some gut-wrenching risks to get there, but I did it—and I was proud. But less than three years later, my business—my dream—is on the brink of shutting down because state government is taxing it to death.
The 2016-17 budget remains unbalanced. Without serious efforts to reduce spending or reform major cost drivers, like public pensions and the sprawling human services system, taxpayers should expect a push for tax hikes in 2017.
Pennsylvanians who didn’t stock up on iTunes, eBooks, and game apps yesterday will begin paying more today, as the 6 percent sales tax on digital downloads, satellite radio, and streaming video and audio such as Netflix, goes into effect.
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Gov. Wolf is embracing a government that works for the wealthy and well-connected. Yesterday, his administration announced its intention to commit more than $20.5 million to Aramark just to keep the corporation located in Philadelphia.
The governor’s preferential treatment of Aramark stands in stark contrast to his treatment of the state’s 300 vape shops. In short, he's putting shop owners out of business for $13 million in revenue, while handing over $20 million to a multi-billion-dollar corporation.
In each of Wolf's first two years in office, his budget included a 40 percent excise tax on the vaping industry. It failed the first year. Unfortunately, lawmakers relented and passed the tax in July as part of a larger $650 million tax increase.
The results have been disastrous. Dozens of shops—like Scottie Freeman’s— have closed their doors and many more are on the verge of closing if the tax is not repealed. Despite the devastation sweeping through the industry, Gov. Wolf hasn’t demonstrated any urgency to undo the damage he’s responsible for.
Maybe the most exasperating aspect of the tax is how much pain its causing for a relatively insignificant impact on the state’s budget picture. The tax is projected to raise about $13 million in total revenue—representing only 2 percent of the $650 million tax increase package. This figure is also $7 million less than what the state just committed to Aramark. Is there a better example of government playing favorites?
Gov. Wolf has made a conscious choice to treat some businesses and people better than others. Aramark and Amazon—they get subsidies. Vape shop owners—they get a platitude-filled press statement about their concerns. Talk about inequality.
Pennsylvania has a history of handing out corporate welfare. It’s hasn’t worked. And it creates a system people grow to resent—one where government picks winners and losers without worrying about the economic consequences. It needs to end.
If Gov. Wolf and lawmakers want to make things right, they can start by repealing the excise tax and reducing corporate welfare. This will help bridge the inevitable budget deficit, but more importantly, prevent further harm to Pennsylvanians.
Fiscal responsibility is at a premium across the country, and Pennsylvania is no exception.
In June, lawmakers passed a budget that increased spending by $1.6 billion. Weeks later, they passed a revenue package, which included a $650 million tax increase to pay for more spending.
Yet, the budget still remains unbalanced. We have already mentioned how how the fiscal plan relies on a $200 million loan and other questionable revenue assumptions.
Now, a new analysis from the Independent Fiscal Office (IFO) explains that some of the revenue Gov. Wolf and lawmakers are counting on to balance the budget may not materialize.
Below is a look at the projected deficit using the IFO’s numbers, contrasted with the General Assembly’s estimates.
|2016-17 Budget Picture (in thousands)|
|Official Estimates (July 2016)||IFO Estimates (August 2016)|
|Total Base Revenue||$31,559,653||$31,553,400|
|Less Tax Refunds||($1,300,000)||($1,300,000)|
|Prior Year Lapses||$57,400||$57,400|
|Sources: Independent Fiscal Office; Senate 2016-17 General Fund Financial Statement|
The table contains various assumptions, which explain the differences among estimates:
- The legislature’s base revenue figure (the amount of revenue expected before any policy changes & based on economic growth) is $6 million higher than the IFO’s estimate.
- The most significant difference is between the "One-time/New Revenue" estimates. Lawmakers estimate policy changes will raise approximately $1.2 billion. The IFO, using more reasonable assumptions, projects the changes will raise just $957 million. Here are the major assumptions explaining the disparity:
- The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have said they want to pass a gambling expansion to generate $100 million to cover CFA spending, but this is far from certain.
- IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million, a $76 million difference.
- IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less the official projections.
- $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate—they do not expect that to occur during the current fiscal year.
So what’s the major takeaway from the IFO’s estimates? Lawmakers must figure out how to eliminate a $264 million deficit this year. Liquor modernization, tobacco taxes, and gaming may bring in enough revenue to balance the budget, but in the likelihood it doesn’t, lawmakers should be ready to reduce spending to match revenues.
Last year, nearly 42,000 Pennsylvanians left the state to pursue their dreams elsewhere—that's one person every 12 and a half minutes. Why is money walking out of Pennsylvania?
That’s the topic of the second episode of Commonwealth Insight, our new, bi-weekly podcast featuring state and national entrepreneurs, policy makers, and thought leaders tackling issues critical to Pennsylvania's economic future.
First, we talk with Travis Brown, Forbes contributor and author of How Money Walks, who says Pennsylvanians are “voting with their feet and taking their wallets” to states like Florida, North Carolina, and Arizona because of our state’s tax burden.
He explains that states compete with each other to attract investment and residents:
Just like the Steeler Nation would look competitively across state lines and do the scouting and reporting to see how we can be better and better next year against the New England Patriots, every competitor would look to the North and say: How can we attract these residents and how do we keep the residents we have?
Travis says there are three major policy areas Pennsylvania can change to be more competitive: regulation, taxation, and litigation.
To reverse out-migration and make Pennsylvania attractive to families and businesses, we must avoid higher taxes, more government spending, and greater regulation.
We also talk with Bob Dick, senior policy analyst for the Commonwealth Foundation, about how the Pennsylvania state budget works—and doesn’t work. Bob says state spending is growing beyond its citizens' ability to fund it, resulting in tax hikes that kill jobs and slow private sector growth. The politically unpopular, but fiscally responsible, solution is to control spending.
posted by DOUGLAS BAKER | 01:57 PM | Comments
New union contracts will make state government more expensive, according to two analyses released by the Independent Fiscal Office (IFO). The IFO projects contracts negotiated by the Wolf Administration with the state’s two largest unions—AFSCME and SEIU—will cost taxpayers an additional ...