7 Ways to Balance the PA Budget Without Raising Taxes

Gov. Josh Shapiro’s latest spending plan would increase spending by $3.2 billion, drain the Rainy Day Fund, and push the state’s structural deficit to nearly $6 billion.

Shapiro was counting on skill games to help balance the billions in deficit spending he proposed. But a recent court decision has thrown a wrench into that proposal. Regardless, he overstated the financial benefits of this policy because the revenue from taxing skill games was just a drop in the bucket.

Now, with the June 30^th budget deadline quickly approaching, Harrisburg needs additional ideas for balancing the budget.

All signals point to a tax hike. The Independent Fiscal Office (IFO) projects this deficit will keep growing for years as spending continues to outpace revenue, blazing a one-way pathway to higher taxes.

“Our opinion is that a broad-based tax increase will be necessary because it will not be possible to cut spending enough to address that full deficit,” IFO Executive Director Matthew Knittel said.

Fortunately, lawmakers have several options to close the gap without raising taxes on families and businesses.

1. Control Spending

Balancing this year’s budget is important, but preventing future deficits is even more critical.

The Taxpayer Protection Act (TPA) would limit spending growth to the combined rate of inflation and population growth. This year, that formula would allow spending to increase by roughly 3 percent—about half the growth proposed by Shapiro.

That represents $1.7 billion less than Shapiro’s spending binge, significantly reducing the budget gap.

Long term, the TPA would prevent the overspending that created the deficit in the first place and restore billions to taxpayers.

Additional reforms, such as requiring balanced budgets before passage and closing loopholes that permit unbalanced budgets to become law, would further protect taxpayers from future fiscal crises.

2. Ensure Medicaid Goes to the Truly Needy

Medicaid remains the largest driver of state spending growth.

Shapiro’s proposal includes a nearly 9 percent increase in Medicaid spending, adding another $1.7 billion to the program. Lawmakers can improve accountability and reduce unnecessary costs by implementing work requirements for able-bodied adults, tightening medical exemptions, and conducting more frequent eligibility reviews.

These reforms would help ensure that limited resources remain focused on low-income seniors, children, and individuals with disabilities.

3. Tap into Pennsylvania’s “Shadow Budget”

Pennsylvania maintains more than 100 special funds outside the General Fund, many of which hold significant surpluses.

As of this spring, 34 special revenue funds held cash balances exceeding their annual spending needs, totaling roughly $5.3 billion. Twenty-five of those funds contain more than a full year’s worth of operating expenses. Additional reserves—including $811 million in funds like the Self-Insurance Guaranty Fund and the Tobacco Settlement Fund—could also be redirected responsibly to support the General Fund.

Before considering tax increases, lawmakers should put these idle taxpayer dollars to work.

4. Use Unspent “Lapsed” Funds

Every year, state agencies fail to spend all the money the General Assembly appropriated to them.

These prior-year “lapses” currently exceed $2 billion. In fact, lawmakers relied on $1.1 billion in lapsed funds to balance last year’s budget. Given the current deficit, using available surplus funds again makes far more sense than increasing taxes.

5. Eliminate Corporate Welfare

Shapiro’s budget proposes spending $1.7 billion on corporate subsidies—$41 million more than last year.

The problem is that these programs rarely deliver on their promises. According to the IFO, most tax-credit programs generate less than 25 cents in economic return for every dollar spent.

Pennsylvania should stop picking winners and losers and instead eliminate ineffective subsidy programs that drain taxpayer resources.

6. Lower Taxes to Grow the Economy

Rather than handing out subsidies, the best economic development strategy is to create a competitive tax climate.

Reducing Pennsylvania’s Corporate Net Income Tax (CNIT) to 5.75 percent and the Personal Income Tax (PIT) to 2.82 percent would save the average family of four approximately $530 per year while making the commonwealth more attractive to businesses and job creators.

States with lower taxes consistently attract more investment, residents, and economic growth than states that rely on government incentives.

7. Expand Educational Choice

Pennsylvania spends nearly $24,000 per student in district schools and continues to increase education spending despite enrollment declines and stagnant academic performance.

By contrast, students receiving privately funded tax-credit scholarships attend private schools at an average cost of about $5,400 per student.

Expanding educational choice programs would give families more options while delivering better value for taxpayers.

The Bottom Line

Pennsylvania doesn’t have a revenue problem—it has a spending problem. Lawmakers have access to billions in surplus funds, opportunities to eliminate wasteful spending, and reforms that would strengthen the state’s finances for years to come.

The money is there. All that’s necessary is the political will to balance the budget without burdening hard-working taxpayers. Pennsylvanian families and businesses struggling to stay afloat financially are depending on Harrisburg to make the right—and fiscally responsible—choice.