Originally published by the Allentown Morning Call on July 31, 2017
Members of the General Assembly were recently sworn in to office only to face another budget crisis. Between an already existing structural deficit, higher-than-expected human services costs, yet-to-be-realized gaming license revenue and a general revenue shortfall, the combined deficit for this year and next in Pennsylvania is roughly $3 billion.
Leaders of the General Assembly rightly oppose a substantial general tax increase to fix the deficit. A higher personal income or sales tax rate would make our tax system even more upside down than it is today. Pennsylvania taxes those with high incomes at a far lower proportion than those with low incomes. State and local taxes take 12 percent of the income of families in the bottom 20 percent of the income scale, 10.3 percent of the income of the middle 20 percent of families, but only 4.2 percent of the income of the top 1 percent of families.
While we shouldn’t raise general taxes, we also can’t close the deficit with spending reductions alone. Since 2010, under Govs. Corbett and Wolf, spending has actually dropped as a percentage of the state’s GDP. From 1994 to 2011, under Democratic and Republican governors, state spending averaged 4.7 percent of GDP. During the Corbett years, that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.
There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public sector unions, can find millions more. But the deficit now approaches 5 percent of yearly spending. Drastic reductions in state spending would require the deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014.
If spending is not the problem, why do we have a deficit?
One reason is that we have been reducing taxes on corporations. Those taxes once accounted for more than 30 percent of general-fund revenue. Today, they account for 17 percent. If corporate taxes brought in even the 22.5 percent of revenue they did in 2002-03, overall revenues would increase by $2.3 billion. There would be no budget deficit in Pennsylvania, and legislators could debate which programs to invest in, not which programs to cut.
While we shouldn’t raise general taxes, we also can’t close the deficit with spending reductions alone. Since 2010, under Govs. Corbett and Wolf, spending has actually dropped as a percentage of the state’s GDP. From 1994 to 2011, under Democratic and Republican governors, state spending averaged 4.7 percent of GDP. During the Corbett years, that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.
There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public sector unions, can find millions more. But the deficit now approaches 5 percent of yearly spending. Drastic reductions in state spending would require the deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014.
If spending is not the problem, why do we have a deficit?
One reason is that we have been reducing taxes on corporations. Those taxes once accounted for more than 30 percent of general-fund revenue. Today, they account for 17 percent. If corporate taxes brought in even the 22.5 percent of revenue they did in 2002-03, overall revenues would increase by $2.3 billion. There would be no budget deficit in Pennsylvania, and legislators could debate which programs to invest in, not which programs to cut.