KEY POINTS

• Pennsylvania’s frequent budget deficits are the consequence of chronic overspending.
• Pennsylvanians pay $4,589 per person in state and local taxes, which equals 10.2 percent of residents’ total income.
• This trend must be reversed by restraining spending growth through long-term reforms like the Taxpayer Protection Act (TPA).

PENNSYLVANIA'S OVERSPENDING PROBLEM

Over the last two decades, total state spending growth has outpaced the economy.[1]

The commonwealth’s total operating budget, which includes the General Fund and Shadow Budget, has more than tripled since 1970 (adjusted for inflation).[2]

A RESPONSIBLE SOLUTION TO PENNSYLVANIA’S FINANCIAL CHALLENGES

The Taxpayer Protection Act’s spending limits would begin to reverse Pennsylvania’s unsustainable spending trend. The TPA does not mandate cuts to government spending. It slows the growth of spending by tying increases to the rate of inflation and population growth or personal income growth.

• The TPA-imposed spending limit may be exceeded if approved by a supermajority of the General Assembly.
• The TPA requires government to prioritize spending. By enacting fiscal guardrails, the state will need to thoroughly review state programs to ensure spending growth is kept within the TPA index.
• The TPA limits spending growth to a formula set by law. Under the TPA, the formula is determined by calculating the average combined rate of inflation and population growth over a three-year period.
• Legislation to implement the TPA has advanced in the House (HB 71) and will be introduced in the Senate. Both bills are constitutional amendments that must pass in two consecutive sessions and do not require Gov. Wolf’s signature.

THE IMPACT OF THE TPA

States that control spending growth are able to maintain a relatively low tax burden, which is critical to economic growth.

• Under the TPA formula, Gov. Wolf and lawmakers could have increased General Fund spending in the 2020-21 budget by $716 million. Instead, they increased it by more than $1.3 billion.
• If the TPA had been applied to the General Fund from FY 2003-04 through FY 2020-21, a cumulative $46 billion—$14,574 per family of four—would have remained in the hands of taxpayers rather than state government.
• If the TPA had been enacted in FY 2003-04, spending could have increased by $10 billion through
  FY 2020-21. Instead, it climbed by almost $15 billion over the same period.

The following chart traces the disparity between state spending and a TPA budget since 2003. Note spending rose dramatically under Gov. Rendell, creating pressure for spending restraint under Gov. Corbett. Under the current administration, spending is once again tracking far above the TPA index.[3]

PENNSYLVANIANS SUPPORT SPENDING LIMITS

A 2019 poll[4] found nearly two-thirds of voters (68 percent) favor limiting the growth of state government. When similar questions about state spending limits were asked on six previous occasions (2005, 2008, 2010, 2012, 2014, 2015), support ranged from 59 percent to 70 percent.

CONCLUSION

By controlling government spending, lawmakers can restore Pennsylvania’s fiscal health and pave the way for tax reform that will benefit working Pennsylvanians. Embracing fiscal responsibility and a pro-growth tax code will make the commonwealth a more attractive place to live and work.