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The Ticking Bomb and the Slow Drip

by Eric Boehm
There’s a ticking time bomb in Pennsylvania’s budget. But there’s also a slow drip.

Fixing the first problem, Gov. Tom Wolf told the General Assembly in his budget address on Feb. 9, will require difficult decisions. That’s putting it mildly, perhaps, since he was asking Republican lawmakers to raise taxes on all Pennsylvanians in order to make the budget balance—and to pay for his proposed 10 percent increase in state spending, mostly for education.

Wolf wants to pass an 11 percent increase to the state’s personal income tax (taking the rate from 3.07 percent up to 3.4 percent), and he wants the increase to be retroactive to Jan. 1 of this year. That way the state would get to collect extra money from taxpayers for the entire year, even if it takes until Dec. 30 for the legislature and governor to pass a budget, like it did last year.

He returned to several of his failed proposals from last year—a broadening of the sales tax base, a higher tax on natural gas drilling companies and higher taxes on gambling and cigarettes.

“This deficit isn’t just a cloud hanging over Pennsylvania’s long-term future. It is a time bomb, ticking away, right now, even as I speak,” Wolf said. “If it explodes—if the people in this chamber allow it to explode—then Pennsylvania will experience a fiscal catastrophe the likes of which we have never seen.”

Politically, many of Wolf’s tax proposals are dead letters in the Republican-controlled General Assembly. The budget address was a chance to bury some of the hatchets welded during last year’s budget impasse.

It seemed as though Wolf wasn’t interested in doing so. That’s a shame. Trust, once lost, is hard to rebuild.

You could almost hear some Republican leaders playing trash can basketball with the budget proposal within minutes of Wolf’s address.

“The governor is doubling down on his failures to provide leadership on accomplishing a bipartisan budget agreement and is being disingenuous on the starting point for his ‘new’ proposal,” says Senate Majority Leader Jake Corman, R-Centre.

Wolf is right about the seriousness of Pennsylvania’s budget deficit. Balancing the long-term structural deficit will almost certainly require higher taxes. Wolf could have made that case, more palatably, if he hadn’t also asked for a record-breaking $33 billion budget plan.

Republicans are right that out-of-control spending is the primary driver of that deficit (even if they share responsibility for current spending levels being what they are) and they’re right that Pennsylvanians have no appetite for higher taxes (who does?).

It adds a theatric element to the message, but one could argue that the bomb metaphor is actually the wrong one. Pennsylvania’s got another problem that is more like a slow leak, the kind that eats away the structural integrity of the floor boards until one day when you step up to the kitchen sink and fall through into the basement.

Pennsylvania saw a net loss of 41,000 residents last year. That’s one person leaving the state every 12 minutes or six people per hour. It’s as if the entire population of Wilkes-Barre packed their bags and moved out of the state within one year.

Last year wasn’t an aberration. It was the fourth consecutive year the state experienced a net loss in population. Fewer people means less tax revenue, of course, but also a loss of potential entrepreneurs, future leaders and a population that grows steadily older and less productive.

Here’s the kicker: the higher taxes that may be needed to close Pennsylvania’s budget deficit are likely to only make that leak worse. Nationally, it’s fairly clear that people are willing to “vote with their feet” and move from high tax states to lower tax states—though other factors certainly play a role too.

Blessed with neither a fabulous climate nor a booming economy, Pennsylvania doesn’t have many of those “other” factors working in its favor.

Raise the income tax by 11 percent, and more people (and businesses) may head for the door. Block those tax increases without cutting spending and the deficit will likely only get larger, leading to more credit downgrades and presaging necessary future tax increases to pay the bill.

Whether it’s a ticking time bomb or a leaking pipe, there’s not a lot of will in Harrisburg to fix the underlying problems.

Another long, difficult and politically charged budget fight lies ahead.

Published (and copyrighted) in Philly Biz, Volume 1, Issue 3 (February, 2016).
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