The state House approved another revenue plan late last night, potentially signaling an end to the 2017-18 budget negotiations.
The bill, HB 542, would allow the commonwealth to raise up to $1.5 billion—either by entering into a “sales agreement” or issuing bonds over a 30-year period. It also includes new taxes on online purchases and fireworks, and “revenue maximization” provisions—like a reduction in a tax appeal period—designed to raise $20 million.
An additional change to a popular business tax provision—the net operating loss deduction—is contingent on a Supreme Court ruling. If the change to the deduction goes into effect, it would increase revenues by $52.6 million in the 2017-18 fiscal year.
These changes would not be enough to pay the state’s bills from the prior year or balance this year’s budget. Consequently, lawmakers are counting on other sources of revenue. These include $200 million from the Pennsylvania Professional Liability Joint Underwriters Association Fund, $300 million in transfers from the shadow budget and an unidentified amount from gambling expansion.
Taken together, this latest plan is not an encouraging solution. It includes unnecessary tax increases—and borrowing, which could cost taxpayers hundreds of millions of dollars down the road. The Senate could improve HB 542 by eliminating tax increases and replacing the lost revenue with liquor reforms, which would more than cover revenue raised by tax hikes.
Utilizing additional shadow budget surplus funds (House lawmakers identified more than $1 billion) is another option to mitigate the need to borrow on the backs of Pennsylvania’s taxpayers.
Regardless of what the final revenue package looks like, lawmakers will need to focus on reducing long-term costs by reforming human services, corrections, education, debt service, and corporate welfare.
This is one of the reasons why the passage of a work requirement waiver for Medicaid and the expansion of the Educational Improvement Tax Credit (EITC) is critical. These meaningful reforms will save taxpayers in the long-run and give Pennsylvanians the tools needed to become independent so they can provide for themselves and their families.
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