Pennsylvania's Budget Leaves Long-Term Issues Unresolved


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A nine-month standoff between the Keystone State’s Republican legislature and Democratic governor will come to a close this Monday when a budget passed by the legislature lapses into law. Gov. Tom Wolf has said that he will neither sign nor veto the bill, so it will pass by default.

The passage of this 3-month budget does delay some potentially serious shutdowns, including the possibility that some schools would need to close their doors mid-year. But overall the package represents a missed opportunity. The legislature’s unwillingness to consider new revenues, reliance on accounting gimmicks, and heavy budget cuts will ultimately harm Pennsylvanians without offering a long-term solution to the state’s possible $2 billion structural budget gap.

Gov. Wolf recently explained that the state “cannot afford a budget that doesn’t provide the things Pennsylvanians need from their government.” He is now asking legislators to look ahead and begin making budget decisions for the impending arrival of fiscal year 2017, which starts on July 1.  

For the new fiscal yearWolf has proposed $2.7 billion in tax and revenue modifications, including: an increase in the state’s flat rate personal income tax from 3.07 to 3.4; expanded tax credits for low-income families; a $1 per pack cigarette tax increase; a 40 percent tax on the wholesale price of other tobacco products; an expansion of the state’s sales tax base to include cable television services, movie theater tickets, and digital downloads; a 6.5 percent shale tax on natural gas reserves; a 0.5 percent surcharge on insurance premiums, now taxed at 2 percent; an 8 percent tax on promotional play at casinos; and an 11 percent tax increase on banks and other financial businesses.

The income tax components in particular could go a long way toward narrowing the state’s budget gap while also somewhat reducing the fundamental unfairness of a state tax system that asks far more of low- and moderate-income Pennsylvanians than of the wealthy.

In short, Pennsylvania lawmakers do have reasonable options, beyond quick-fix fiscal bandages, available for addressing the state's long-term revenue challenges.

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