Projection: Pa. deficit to exceed $1B

Smaller than previously forecast

HARRISBURG — The “structural deficit” created by state government’s projected spending exceeding projected revenue will surpass $1 billion in a few years, but still be much smaller than previously anticipated, the Independent Fiscal Office predicted on Thursday.

The office released its annual economic and budget outlook in a presentation at Harrisburg University. Director Matthew Knittel said some reasons for expectations of smaller deficits were a good economy and wage growth in Pennsylvania that exceeded forecasts.

The report is issued annually by the office to help state residents and lawmakers in policy decisions. It made economic and demographic assumptions to conclude that, putting aside various alternate scenarios that could affect both revenue and expenditures, the state’s deficit will exceed $1 billion by 20222023.

Specifically, it called for a deficit of $1.3 billion in that year. Last year, the projection for the same year was a deficit of $1.8 billion.

Among the many assumptions underlying the office’s projections was one that the economy would not fall into recession.

Knittel’s presentation was preceded by one from Matthew Gardner, senior fellow at the Washington, D.C.based Institute on Taxation and Economic Policy.

More than 30 states have graduated income tax systems. Gardner described how Pennsylvania’s status as one of only eight “flat tax” states — the personal income tax rate is 3.07 percent regardless of income — affected tax revenue coming from people with large incomes and those with relatively small incomes.

The top 1 percent of earners in Pennsylvania are paying a far lower percentage of their income in total taxes than the bottom 20 percent of earners, Gardner said.

Part of the reason is that different taxes affect segments of the population in different ways, and well-off taxpayers typically get more of their income from capital gains, dividends and interest than people in lower-income groups.

Gardner said a sensible tax system, among other things, should be adequate for the short-term, sustainable for the long term and “ought not to tax low-income families further into poverty.”

Another speaker, Katherine Loughead of the Washington, D.C.-based Tax Foundation, called Pennsylvania’s property tax administration “overly complex” and “incredibly non-transparent.”

She described how the tax was based on property assessments that in some counties are decades old. Individual taxpayers may have little idea of how their tax was calculated, she said.

The lack of transparency, she said, “can lead to a great sense of unfairness among taxpayers.”