‘Spend-first, Tax-later’ is Flawed Budgeting

Note: This commentary was first published at PennLive.com.

Last June, Gov. Wolf sparked a fiasco by vetoing the General Assembly’s budget in its entirety. The resulting 9-month impasse crippled nonprofits and threatened to shutter schools across the state. To avoid the political fallout of a repeat performance this year, the Legislature passed a spending plan Wolf says he’ll sign.

One problem: Lawmakers never said how they’ll pay for it.

Strangely, that was part of the plan. One legislative leader bluntly stated, “We want to agree on a general appropriations bill, and then we'll get to work on how to pay for it.”

That’s not how budgeting should work—just ask any family or business. It’s easy for the Legislature to say they’ll spend 5 percent more this year than last. It’s harder deciding how to make those ends meet.

Almost certain to come, though, are tax increases.

Legislators and the governor have declared “broad-based” tax increases off the table. But they are considering a new tax on natural gas consumption.

This would raise home-heating bills for 2.7 million Pennsylvania homeowners—families, seniors, low-income households, and small business owners who use natural gas. In other words, a “broad-based” tax increase by another name.

Pennsylvanians can also expect a major cigarette tax increase. This tax falls disproportionately on low-income households, while increasing smuggling across state lines. Lawmakers’ spend-first mentality may mean balancing the budget on the backs of the poor while incentivizing a black market.

Pennsylvania already heavily relies on revenue from tobacco, gambling, and alcohol to fill budget gaps—in fact we lead the nation in so-called “sin taxes.” These revenue sources are unpredictable, decline over time, and create perverse incentives.

The state needs Pennsylvanians to keep smoking, drinking, and gambling to enable lawmakers’ addiction to overspending.

Beyond the faulty spend-first, tax-later approach, the budget itself represents the largest spending jump in a decade—$1.6 billion over last year’s budget. This is five times the rate of inflation and population growth. 

Politicians often cite a “structural deficit” to justify such spending increases. However, the “structural deficit” exists only because of years of legislative inaction on pension reform and welfare reform.

Pension costs have skyrocketed over the past decade as previous legislatures and governors ignored calls for reform. Yet, we continue pushing costs onto future generations instead of paying now for what we’ve promised.

Welfare spending growth also outpaces the growth of our economy, making it unsustainable for taxpayers. Elected officials must tackle this long-term problem and control welfare spending growth.

Unfortunately, the current budget addresses neither of these cost-drivers.

It also does not address the $700 million in corporate welfare subsidies the state doles out at taxpayers’ expense—more than any other state in the nation. Instead, the budget adds $10 million in corporate handouts and pork barrel projects.

Meanwhile, the rush to pass a budget by the deadline after months of procrastination came at the expense of proper scrutiny.

For example, page 400 of the budget bill authorizes the Department of Human Services to borrow an unlimited amount of money from the Worker’s Compensation Fund to pay excessive Medicaid bills. There’s no way to know how much this will cost taxpayers.

Similarly, the Senate moved $95 million in spending off-budget, hiding the true cost, though taxpayers will still pay the bill. In reality, the Senate added $74 million in spending to the House’s budget plan.

This new spending won’t reduce the “structural deficit.” Neither will an $18 million increase (plus an $8 million retroactive increase for last year) in the Legislature’s own budget.

Despite these criticisms, taxpayers can be thankful lawmakers rejected Wolf’s call for higher income and sales taxes to fund about $1.7 billion more in spending. The budget also expands the highly successful Education Improvement Tax Credit, which will provide better educational options for thousands of students.

Yet, as it stands, this budget leaves families trapped in a game of tax roulette—praying their taxes don’t go up this year. Next year, let’s hope taxpayers don’t have to choose between an on-time budget and a good budget.

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Nathan A. Benefield is vice president of policy for the Commonwealth Foundation,
Pennsylvania’s free market think tank.