News Release: Wolf Pivots on Massive Tax Hikes, Offers Limited Structural Reforms

Budget Includes Belt-Tightening But Relies on $1 Billion in New Taxes

February 7, 2017, Harrisburg, Pa.—Pivoting from the past two years, Governor Tom Wolf today proposed a state budget that shifts from massive personal income and sales tax hikes and spending increases to streamlining state government. While his proposal is an improved starting point in budget negotiations with the General Assembly, it still calls for $1 billion in new taxes and would increase the state’s tax burden by $315 per family of four.

“On the positive side, Gov. Wolf outlined a budget proposal that recognizes Pennsylvanians want Harrisburg to spend smarter, not more,” commented Nathan Benefield, vice president and COO for the Commonwealth Foundation. “But while offering several important ways to streamline state government, Wolf did not completely abandon his demand for higher taxes on working-class Pennsylvanians or tackle the structural reforms our state needs.”

Under Wolf’s proposed budget:

  1. Government Would Streamline—Gov. Wolf’s proposal shows a concerted effort to control spending. Wolf proposed multiple department mergers that would eliminate unnecessary bureaucracy and improve service efficiency. These include merging four departments into the Department of Health and Human Services, merging the Department of Corrections and the Board of Probation & Parole into one agency, merging the investment offices of the state’s two pension funds (SERS and PSERS), and implementing new sentencing reforms.
     
  2. Corporate Welfare Would Decrease—Gov. Wolf’s proposal to reduce corporate welfare by $100 million is a laudable first step. Unfortunately, Wolf treats scholarship tax credit programs (EITC/OSTC) that help children access a quality education the same as handouts to multi-billion dollar corporations. It’s uncertain how these scholarship programs would fare under Wolf’s proposal. Lawmakers should protect and expand the EITC/OSTC programs, which actually save taxpayer dollars, while completely eliminating $800 million in unfair business handouts.
     
  3. Spending Would Rise—Wolf’s budget calls officially for $570 million in new General Fund spending, but this number is actually higher, since he proposes moving some spending off the General Fund books and into the shadow budget. Wolf’s spending increase would be approximately 1.8 percent, compared with 1.16 percent if the state limited spending to inflation plus population growth, as outlined in the Taxpayer Protection Act which the Senate Finance Committee advanced today.
     
  4. Pennsylvanians Would Bear Brunt of Higher Business Taxes—Gov. Wolf proposed targeting businesses for tax hikes by expanding the sales tax to custom software services, commercial storage, airline food, and aircraft sales. As Philadelphians have seen with the soda tax, customers—not businesses—end up paying these taxes.
     
  5. Workers Would Lose Jobs—Wolf’s budget calls for a 60 percent hike in the minimum wage, which would stifle job opportunities and harm those Wolf claims will benefit by forcing business owners to lay off workers.
     
  6. Natural Gas Companies Would Pay an Added Tax—For the third time, Gov. Wolf has proposed an added tax on gas drillers. These companies already pay an impact fee, along with the taxes every other Pennsylvania business pays. Gov. Wolf would add an additional 6.5 percent severance tax to this industry, which is already laying off workers.

“While the governor has outlined several positive steps in the right direction, Pennsylvania still needs transformative structural reforms to end the cycle of budget shortfalls without raising taxes,” Benefield added. “We can continue with one-time fixes, or we can do the hard work needed to solve the budget crisis once and for all. This includes limiting state spending to the growth of inflation and population through the Taxpayer Protection Act, fully privatizing the state liquor system, reforming pensions to create an affordable system for taxpayers that gives workers more flexibility, and redesigning human services.

“The good news is the culture in Harrisburg is shifting decidedly in favor of putting taxpayers’ interests before special interests,” Benefield continued. “Without a doubt, Gov. Wolf has experienced this culture change over the past two years and moderated his positions in response. His budget proposal offers lawmakers a starting point, but now they need to go a step further. Legislators must commit to ensuring every dollar Harrisburg spends is spent wisely before asking taxpayers for more of their hard-earned money.”

Nathan Benefield and other Commonwealth Foundation experts are available for comment. Please contact Gina Diorio at 862-703-6670 or gld@commonwealthfoundation.org to schedule an interview.

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