Tuesday, November 17, 2015

Proposed Pennsylvania State Budget Tax Increase

           The proposed budget compromise between Pennsylvania’s liberal Democratic Governor Tom Wolfe and the majority Republican General Assembly would increase taxes significantly.  Although the proposal avoids the Governor’s income tax increase and an extra tax on natural gas extraction, it includes an increase in the sales tax that will not entirely offset school district real estate taxes. 

            The sales tax paid by every resident and business, as well as visitor, who purchases anything in Pennsylvania would increase from 6% to 7.25%, and even more in Philadelphia and Pittsburgh, under the proposed budget, to offset school real estate taxes, but the gambling money that currently provides relatively modest real estate tax relief for Pennsylvania landowners would be diverted to the general fund for Wolfe’s spending spree, resulting in an overall increase of over $600 million in taxes, which means a net average increase of nearly $200 per homeowner.  Businesses would lose revenue to neighboring states, as Pennsylvania’s sales tax would be higher than theirs.  In fact, the Keystone State’s sales tax would be the second highest in the American Union.  And there would still be no required referenda to allow school district boards of directors to raise real estate taxes above inflation and enrollment growth levels. 

I know from experience as a School Director that there is much room for improvement in how Districts spend taxpayer money and collect revenue.  I also know that although Wolfe proposes to increase spending for schools dramatically, even though they are already at their highest levels, that there is no correspondence between spending and results in terms of learning, as measured by standard tests and other measures.  In fact, test scores have decreased, despite a dramatic increase of state spending on education over the last four decades.

            The fiscal year ended June 30 without a budget because Wolfe vetoed a balanced budget approved by the state legislature that did not raise taxes.  He even vetoed a stop-gap measure.

            The proposed budget includes some significant pension reform for the first time, as new state employees would be required to contribute a small portion of their income into 401(K) type plans, in addition to defined benefit plans.  Even this modest change would save billions of dollars over decades.  The Governor also proposes to lease to a private entity the management of the state wine and spirit stores, but the Commonwealth would retain its wholesale and retail monopoly and will still suffer from a conflict of interest by promoting the sale of alcohol while regulating its use.  Pennsylvania’s complex Prohibition-era restrictions on the sale of alcohol would continue, as many ordinary Pennsylvanians would continue to cross state lines to purchase alcohol and risk prosecution for bootlegging for bringing it home.  The proposed budget lacks other significant cost-savings such as eliminating hundreds of millions of dollars of wasteful spending, such as corporate welfare, or special-interest tax breaks that could have been used to avoid a tax increase.

            Although there are some positives in the proposed budget, the tax increase is fiscally irresponsible, as it will have potentially harmful economic affects, especially during this time of only weak economic growth.  County, municipal and especially school district real estate taxes penalize property improvements while incentivizing blight, lower real estate values, reach a point of diminishing return in terms of collections and are anti-business.  They turn every homeowner into a tenant of the state with the constant threat of having to sell one’s home in order to pay the taxes.  At a time when Pennsylvanians of both political parties have been demanding meaningful real estate tax relief, if not the total elimination of school real estate taxes, through a revenue-neutral tax shift to higher sales or income taxes, it is shocking that a significant net tax increase would even be considered seriously. 

           Pennsylvanians must oppose the unnecessary proposed net tax increase and insist on better fiscal responsibility and more controls on how local School Districts manage taxpayer money.  

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