Another Rickety Bridge to PA’s Future

Budget deal will result in job losses, additional tax hikes in future years

HARRISBURG, PA  – Commonwealth Foundation president and CEO Matthew Brouillette released the following statement in response to today’s announced budget deal between leaders of the Senate and the House Democrat caucus:

“Legislative leaders in both parties are to be commended for rejecting the worst elements of Gov. Rendell’s agenda, including tax increases on personal income and natural gas. This budget deal, however, erects another rickety bridge to Pennsylvania’s future. It raises taxes on workers and job creators today while exposing them to even more financial harm with unaffordable commitments tomorrow.

The level of spending in the budget deal is such that Pennsylvania will be faced with another multi-billion dollar budget gap in just a few years. With federal stimulus dollars expiring in 2011, billions of dollars due in increased payments for state retirees’ pensions, and the Rainy Day Fund drained and one-time revenue sources used up, we’ll be dealing with another budget shortfall in the near future. Filling that gap would require utterly unrealistic economic growth, deep spending cuts, or-the most politically likely outcome-even higher taxes on workers and job creators.

According to the Pennsylvania State Tax Analysis Modeling Program (PA-STAMP) developed by the Beacon Hill Institute at Suffolk University, the retroactive increase of the Capital Stock and Franchise Tax (CSFT) and the 25-cent per-pack increase in the cigarette tax will cost more than 7,800 jobs by 2012, which will further diminish state revenues.

In 2006, Gov. Rendell admitted the CSFT “[h]its Pennsylvania businesses- particularly manufacturers-hard. I am convinced that accelerating the phase out of this tax will do more to help Pennsylvania workers than any other business tax change we can afford to make at this time.” Now he and legislative leaders want to raise it?

The reality, of course, is that these higher business taxes will be paid by consumers in the form of higher prices for goods and services and by employees in form of reduced wages and benefits.

Although smokers are always an easy target, research shows that the cigarette tax hits low-income and minority Pennsylvanians the hardest and is an unstable and declining revenue source. So while some believe this tax will not affect them, the reality is that shortfalls in cigarette tax revenue will eventually be filled with higher taxes elsewhere.

The legalization and taxation of table games is another unreliable revenue source. The last such scheme (slot machines) produced $400 million less than policymakers told the taxpayers it would, and it also reduced revenue from the state lottery.

Finally, this rickety budget bridge represents a 39 percent increase in spending since Rendell took office-more than double the concurrent 18 percent inflation. While Pennsylvanians are losing their pay, health care benefits, and even their jobs, state government keeps taking more.

Instead of putting Pennsylvania on a path to prosperity, the tax increases and overspending in this budget will continue the hindrance of Pennsylvania’s economic recovery in the months and years to come.”

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The Commonwealth Foundation ( is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.