Failure to Save Now Means Tax Hikes Later

Anyone who’s had to pinch a few pennies knows this to be true: Failure to save in good years means you’re not prepared for the bad ones. This is a year our state should be saving. Last month’s state tax revenues were $464 million more than expected, which brought the annual surplus to $828 million. Unfortunately, cost overruns from last year—totaling $495 million—are waiting to take about half. This is a prime example of government living paycheck to paycheck, which will only continue if spending growth isn’t controlled.




Chart: Pa.'s Total Operating Budget

The good news is that focusing on the problem of spending growth when revenues are high will allow Pennsylvania to be secure for years when they are not. 

“There’s going to be a lot of talk about spending money. Anytime you have money, everybody wants to spend money. We need to be cautious about that,” warned House Appropriations Chair Stan Saylor.

Rep. Saylor’s caution is important. Despite current surpluses and deposits in the rainy-day fund, Pennsylvania is not fiscally stable. Just last year, the state deposited $22.5 million into the rainy-day fund only to close out the year with $495 million in overrun costs. These costs are eating into this year’s windfall. 

Furthermore, the government has a history of draining its reserves when years are lean. In 2002, the state used over $1 billion in funds, leaving the state with no safety net. This happened again in 2010 when $755 million in reserves were used to cover spending. When rainy-day funds are not available, tax hikes are the preferred method to make up the difference. Pennsylvania has passed tax increases five times in the last 10 years, including a significant tax hike in 2016, and a less dramatic tax hike in 2017.

This is why a Taxpayer Protection Act (TPA) is so critical. TPA bills have recently been introduced in the House by Rep. Ryan Warner (HB 1316) and in the Senate by Sen. Camera Bartolotta (SB 116). The TPA ties spending increases to the rate of inflation and population growth. As a constitutional amendment, the legislation needs to pass two consecutive sessions before going to the ballot, circumventing the governor.

Because of uncontrolled spending in high-revenue years, funds are going towards past spending instead of securing our future. Making the TPA constitutional amendment a priority this year is the first step to ensuring a sufficient buffer against tax hikes for years to come.