Pennsylvania should learn from last year’s budget mistakes
Here we go again. It’s early summer and the state budget debate is reaching a crisis point. But before you dismiss the proceedings as political theater, consider this: The deals hashed out in Harrisburg could blow a hole in your own budget or even strip you of your livelihood.
The unnatural disaster inflicted on the vaping industry last year is a perfect example. Facing a projected budget shortfall (sound familiar?), lawmakers and Gov. Wolf slapped a 40 percent wholesale tax on vaping products — forcing shop owners to pay the tax retroactively.
Less than a year later, at least 30 percent of vape shops in Pennsylvania have shut their doors. Dozens of small business owners, hundreds of employees, and thousands of customers were devastated just to “raise revenue.”
The truth is, tax increases weren’t necessary last year and aren’t this year. Low taxes aren’t fueling Pennsylvania’s problems — we have the 15th-highest state and local tax burden in the nation, including the highest gas tax in the U.S. and the second-highest corporate income tax in the industrialized world.
Overspending and anemic economic growth are the real reasons for the budget shortfall. Raising taxes solves neither.
From 1991-2015, Pennsylvania ranked 46th in job growth, 45th in personal income growth, and 46th in population growth. For the first time in three decades, Pennsylvania’s population shrunk last year, and nearly 13,000 college-educated millennials fled to greener pastures.
If lawmakers and Gov. Wolf settle for business as usual instead of reinventing government, these depressing trends will worsen.
Contrary to what we’re hearing out of Harrisburg, plenty of options exist to shore up the state’s finances without resorting to risky loans or targeted tax hikes.
First, it’s time to stop giving public money to private businesses. At the same time vape shops were taxed out of existence, the state gave $800 million in grants, loans, and tax credits to businesses with more political clout in Harrisburg.
Amazon, Netflix, Kraft, and Harley-davidson are just a few of the big businesses granted special perks at taxpayer expense. The horse racing industry alone gets $250 million per year. Pennsylvania leads the nation in this wasteful corporate welfare spending at $6 billion since 2007. This gravy train benefits those with biggest army of lobbyists but fails to deliver economic growth — let’s apply the brakes.
Second, Prohibition ended 84 years ago — it’s time to start trusting Pennsylvanians to purchase wine and liquor where and how they want. Ending government’s liquor monopoly could generate $500 million next year, plus annual license fees and recurring tax revenues from reducing “border bleed.”
Third, shine a spotlight on the “shadow budget.” The budget lawmakers are wrangling over now — around $32 billion — is less than half of what the state actually spends.
The total budget is $80 billion for the current fiscal year. This includes nearly $20 billion in state spending outside the General Fund Budget, most of which is left on autopilot to grow year after year.
Hidden in the shadow budget is the Keystone Recreation, Park and Conservation Fund, which has financed projects like an African Wild Dog Exhibit and an Athletic Fields Feasibility Study.
These and other funds found in the shadow budget, like $1.4 billion in subsidies to mass transit, should be redirected to more important priorities.
With pension reform, lawmakers and Gov. Wolf proved they can come together and make progress.
It’s time to sustain that bipartisan momentum, double-down on reinventing government, and avoid repeating the mistakes that cost many hard-working Pennsylvanians their livelihoods. Bob Dick is a senior policy analyst with the Commonwealth Foundation.