The state budget
It’s budget season in Harrisburg. The House has passed its version (HB218) of the 2017-2018 budget and sent it to the Senate. This is the time of year that we taxpayers should be paying close attention because of the impact the final bill will have on our wallets or the services we depend on. Here are some budget highlights using approximate numbers for the major categories of revenues and expenses.
First of all, the total Pennsylvania spending budget is actually about $80 billion. The part of the budget that the lawmakers argue about each year is called the General Revenue Fund. They debate about how much to spend, who gets what (winners and losers) and where the money is going to come from. This year that part of the budget calls for roughly $32 billion of General Revenue Funds to be spent or about 40% of the total budget.
The other 60 percent or $48 billion of spending is covered by money received from the federal government (about $28 billion is expected this year), plus a category I’ll call ‘other’, which includes money from the lottery fund, motor license fees, fuel taxes and other taxes. These funds are most often pre-designated to specific spending purposes specified by law so they typically are not on the table for discussion. But there could be exceptions.
Of the $32 billion of proposed spending, the two major areas are PreK-12 education ($12 billion) and health and human services ($13 billion) or $25 billion. Other major spending includes state police, transportation, economic development and payments on the public debt to name a few.
Where does the money come from? The three largest taxes that contribute to the funding of that $32 billion budget come from personal income taxes ($13 billion), sales and use taxes ($11 billion) and corporate taxes ($3 billion) for a total of $27 billion. The remaining revenues come from a host of smaller taxes and fees.
Now if the legislators propose spending more money than the expected revenues will cover, they’ll have to start talking about raising existing taxes, creating new taxes, issuing bonds (which adds to the public debt), or one time revenue gimmicks like the Farm Show Complex lease-lease back proposal that is under consideration.
So now our Legislators and the governor will argue about how to balance expected revenues with expenses. The problem is always that there is never enough money to cover all the proposed spending and sometimes even the expected revenues will fall short of expectations. Just like our own budget at home there are plenty of expenses and never enough income. Did I mention that the state is expecting a $600 million deficit for the current budget that has to be paid this July 1st? And don’t forget the issue of the underfunded pensions that never gets resolved.
So from the very beginning it’s a good bet there will not be enough revenue coming in to cover all the spending. And you can bet every person, program, agency and school district that currently receives taxpayer dollars will want more or at least no reduction to their current funding.
What to do? There really are only three choices; raise taxes, cut spending or borrow money by issuing bonds which increases the public debt. Well nobody wants higher taxes, especially elected officials. They want to get re-elected and raising taxes doesn’t look good on the resume.
They’ll say they are looking out for the ‘hard working taxpayers’ of Pennsylvania but if that’s what they’ve been doing all these years why do we start each budgeting cycle with a deficit and plans to spend more money?
Year after year we hear our legislators promise to eliminate wasteful spending and fraud. And yet we apparently still have it because they keep saying it’s there and they’re going to eliminate it. So they include elimination of wasteful spending in the budget year after year as a way to balance the budget. But what guarantee is there that those proposals to cut waste will ever result in the expected savings? Yet those expectations are included in the budget as if they will.
Another option is to cut spending on existing programs. OK, but who should get their funding cut? The other guy, not me, is a typical response. Let’s admit it. We are all ‘addicted’ to government spending, at least for the things we care about like health care services, tax credits, money for community development, infrastructure and law enforcement to name a few of the hundreds of ways tax dollars are spent.
There will always be a person or group of people who object to spending cuts because they depend on those services or on that money.
So you can’t avoid spending cuts without upsetting someone. I don’t envy our legislators. They have an impossible task balancing a budget while trying not to anger the citizens and keep their job. But by the same token they should not continue to introduce new programs every year that spend money we already know we don’t have.
What about taxes? There are two areas that could provide significant revenue. They’ve been talked about for years and yet nothing ever comes of it. They are the Delaware Loophole that allows corporations to avoid net income taxes and the shale gas extraction tax. Why haven’t our legislators been able to tap these sources of revenue. What’s so toxic about these issues that they won’t act on them? Could it be all about outside “influence” from corporations with money to spend on lobbyists, coupled with their own desire to get re-elected?
Corporate net income taxes currently represent about $3 billion of the $32 billion revenue stream to the General Fund while taxpayer’s personal income tax, sales and use taxes combined represent $24 billion. Is that a fair share?
Why can’t we close the Delaware Loophole which allows about 70% of large corporations that operate in Pennsylvania to avoid paying corporate income taxes? Big corporations like Walmart can arrange their books to make it look like their stores in Pennsylvania make little or no profit so they pay little or no corporate net income tax in our state. And it’s perfectly legal.
Now we all understand that raising taxes on businesses will eventually get passed along to the consumer/taxpayers. That’s just the way it is. You can’t tax a business to the point that it can’t make a profit or there won’t be a business or the jobs that go with it. But letting businesses use a legal loop hole to avoid paying taxes just doesn’t seem right.
Why won’t legislators pass a shale gas extraction tax? It’s estimated the tax would raise $300 million. Every other major gas producing state has one. Will the tax get passed onto Pennsylvania customers? Most likely but consider that 80 percent of the gas extracted here in Pennsylvania leaves the state so that out of state customers end up paying the tax. Plus if the gas you are using happens to be coming from some other state you are already paying for that state’s extraction tax. But yes, if the gas you are using happens to come from Pennsylvania, then you’ll end up paying the tax.
The current budget does contain $1 billion in proposed new taxes. None are aimed directly at individual taxpayers (which keeps potential voters happy) but at businesses for goods and services they buy, which will inevitably get passed along to taxpayers anyway. So fellow taxpayers, be prepared to face the inevitable decision lawmakers will soon be making between fewer services or higher taxes or a combination of both. But first and foremost be involved. Follow along with the budget discussions in Harrisburg and contact your legislators to let them know your preferences for solving the budget problem. And if we continue to have the same budget problems next year and the next year isn’t it time to change the people who are supposedly working for the ‘middle class, hard working taxpayers’ of Pennsylvania that they talk about each election cycle?