The House’s preferred approach to close the state’s $2.2 billion deficit recently came under fire for its reliance on one-time revenue sources rather than recurring revenues, i.e., tax increases. But this criticism misses the larger picture. The state is not going to solve its long-term financial challenges in the next few weeks. When lawmakers passed a $32 billion spending plan, they affirmed this wasn't the year for controlling spending.
Since 2011, General Fund revenue has grown by more than $3.5 billion after accounting for tax refunds. In contrast, state spending has risen by $4.9 billion.
Now, lawmakers and the governor have to choose between raising taxes or reforms to balance the budget.
Elected leaders can raise taxes on natural gas, utility bills, cell phones, fireworks, and online purchases.
OR
Consider non-tax revenue options, which include shadow budget surplus transfers, liquor privatization, and gambling expansion.
There’s no question Pennsylvania can avoid tax hikes, but will it? Are lawmakers going to take more from taxpayers when the state has billions in surplus funds sitting around? Or will they skim more from Pennsylvanians’ pockets and kill good-paying energy jobs? It's that simple.
The path forward should be obvious. More borrowing and tax hikes will only make our problems worse. Borrowing will increase costs for taxpayers and higher taxes will stunt already anemic economic growth, thereby compounding the state’s budget difficulties. Indeed, other high tax states including Illinois and Connecticut are plagued with their own fiscal challenges.
If tax hikes were the answer, why didn't the $650 million tax hike stabilize Pennsylvania’s finances last year? Or any of the last four times in the past eight years that state government raised taxes?
If more revenue were the answer, why does Pennsylvania continue to experience shortfalls despite revenue growth? The simple answer: too much spending. Since 2011, General Fund revenue has grown by more than $3.5 billion after accounting for tax refunds. In contrast, state spending has risen by $4.9 billion.
The truth is only spending reforms will permanently end Pennsylvania's budget problems.
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