Following a year of contentious budgetary stand-offs, the 2016-17 state spending plan became law days after the constitutional deadline in a bipartisan, cooperative fashion. Unfortunately, despite this renewed spirit of compromise, the budget was finalized without addressing the Commonwealth’s number one cost-driver – the growing pension crisis.
The $31.5 billion spending plan is smaller than the $33.29 billion proposed by the Wolf administration in February. However, because the final spending plan represented a nearly 5 percent increase in spending over the previous fiscal year, $1.3 billion in additional revenue was needed in order to balance the budget.
While Gov. Tom Wolf’s original proposal to enact broad-based increases in both the sales and Personal Income Taxes was taken off the table in early June, a number of other potential tax increases were being discussed in the halls of the state Capitol. As negotiations on a revenue package continued into the early days of July, the PA Chamber fought back against a proposed gross receipts tax on natural gas users. This tax would have increased utility bills for the 2.7 million Pennsylvanians who use natural gas to heat their homes and businesses. Other proposed tax hikes that the PA Chamber helped to quash during 2016-17 budget negotiations included a new tax on property, fire and casualty insurance; another tax on the natural gas industry; and an increase in the waste removal tax, or “tipping fee,” that landfills pay for each ton of dumped garbage.
In the end, the final revenue package included: increasing taxes on certain types of tobacco, capping the sales tax vendor discount, expanding the sales tax to include digital downloads, applying a Personal Income Tax on lottery winnings, increasing the rate of the Bank Shares Tax and raising the tax on table games by two percent. The final agreement also assumes revenues from a yet-to-be enacted gaming expansion proposal. Two initiatives that earned the PA Chamber’s support - a new tax amnesty program and revenue from the recently enacted liquor reform legislation – were also part of the deal.
In a statement issued after the budget was enacted, the PA Chamber expressed concerns that capping the vendor’s allowance on sales tax will increase the cost of doing business in the state and negatively impact the Commonwealth’s overall competitive edge. The vendor’s allowance helps retailers recoup costs associated with collecting the sales tax on behalf of the state – a complex, multi-step process that is very expensive for businesses. The newly enacted Tax Code puts in place a $25 per month or $300 per year cap on this allowance.
The PA Chamber firmly believes that prior to increasing spending and enacting any new taxes, elected officials should have implemented comprehensive reforms within the Commonwealth’s public pension systems. With an unfunded liability that is expected to balloon to more than $58 billion this year alone, the growing pension crisis is the greatest threat to the state’s long-term fiscal health and has already led to multiple credit downgrades. Mandated pension obligations for the state and public school districts increase each year, impacting every single Pennsylvania taxpayer. As more tax dollars are spent to pay for these costs, more funding is diverted away from the classroom and important state programs.
Only through lasting, structural reforms will Pennsylvania be on a firm financial footing. Moving to a 401-K style system – like much of the private sector already utilizes – and rolling back the multiplier for current employees will help to shift the risk away from Pennsylvania taxpayers and put the Commonwealth’s pension systems on a sustainable path going forward. To learn more about Pennsylvania’s pension crisis, visit the PA Chamber’s pension reform page.