September 1, 2016
By Neil Cosgrove

When Pennsylvania’s legislature and governor agreed this past July to 2016-17 spending and revenue plans, a collective sigh of relief was audible throughout the state. After suffering through nearly nine months without a 2015-16 budget, school districts and social agencies that survived last fall and winter using stop-gap devices like lines of credit and short-term loans now knew within two weeks of the June 30 fiscal deadline what their state funding would be, and could make personnel and property tax decisions accordingly.

Moreover, for the first time since federal stimulus money dried up in 2011, budget allocations for education increased across-the board. Basic education funding went up 3.5% from the previous budget, and funding for community colleges, state-owned universities and state-supported universities increased 2.5%. Unfortunately, chronic prioritizing of punishment over learning was still evident in the new budget, as Corrections and Rehabilitation got a 6.8% increase, while Probations and Parole went up 5.3%.

And the legislature’s regressive tax policies remain firmly in place, with the revenue package passed July 13 doing nothing to address either the state’s structural deficit or income inequality. After the legislature sent a spending plan to the governor, the Republican-controlled General Assembly and Senate still needed to come up with $1.3 billion in additional revenue to balance the budget.

They did so, says John Neurohr of the Pennsylvania Budget and Policy Center, by agreeing to $709 million in one-time sources and only $627 million of recurring revenue. In other words, our legislators will have to address the revenue short-fall again next spring, not coincidentally when they won’t be facing a November election.

Neurohr also argues that the lawmakers are relying “too heavily on dubious sources” such as liquor privatization, taxes on internet gaming, a tax amnesty program, and a license fee for a second Philadelphia casino many suspect won’t be built. One feckless “Hail Mary” revenue source is the $12 million expected from licenses allowing casinos to sell liquor 24-hours a day. “We’re not going to pay $1 million for the privilege of selling alcohol after 2 a.m.,” said the CEO of one of the state’s 12 casinos, “and I don’t know of any other casino that will.”

Other new taxes are clearly regressive, taking money from people who are usually the least likely to afford the hit. The cigarette tax has jumped from a $1.60 to $2.60 a pack, and a tax was added for electronic cigarettes, roll-your-own tobacco, and smokeless tobacco. The state sales tax was extended to electronically delivered items, obtained digitally or by streaming.

Could our legislature eliminate the structural deficit and considerably increase education spending with more progressive taxes, despite the state’s constitution mandating a flat income tax on wages? The answer is a resounding “yes,” and we can count the ways.

  • In February Governor Wolf proposed taxing income from wealth (dividends, capital gains, and business profits) at a 4% rate (the current wage income tax rate is 3.07%). This increase would yield an additional estimated $788 million in revenue.
  • Eliminating the so-called “Delaware Loophole” would bring in another $493 million, Eric Epstein of Rock the Capital estimates. Under this loophole, Epstein reports that “local outlets of large national chain stores pay royalties to sister companies in other states, claiming the payments as business expenses,” which are then deducted from our state’s income taxes. Delaware is notorious for sheltering “brass plate” headquarters for hundreds of large corporations, including 500 that are reportedly located on one floor of Rodney Square in Wilmington, DE.
  • Raising the state minimum wage from $7.25 an hour to $10.10 would bolster the budget anywhere from $60 million (Governor Wolf’s conservative estimate of new revenues) to $225 million. The latter number is attributed, says Stephen Herzenberg of Third and State, to a consequent increase in the incomes of current Medicaid recipients to the range covered by “’Medicaid expansion,’ within which the federal government pays more of the cost.” Counting on the higher number would certainly be in keeping with the accounting approach taken by the legislature in the July revenue bill.
  • Finally, let us not forget the 6.5% severance tax on Marcellus Shale gas production proposed by Governor Wolf in February, which would yield $217.8 million, even with the drop in extraction caused by a slump in commodity prices.

Taken all together, the above package adds up to over $1.7 billion in recurring revenue, without gouging citizens addicted to nicotine or gambling, or imagining income from alcohol licensing and sales that may or may not occur. Our legislators should be regularly reminded that Pennsylvania’s citizens deserve well-funded schools and sustainable state budgets, and that both goals are obtainable through greater equity in our tax structure.


Neil Cosgrove is a member of the NewPeople editorial collective and the Merton Center Board.