After years of harsh budget cuts, the economic recovery has meant good news for states reaping the benefits of rebounding tax revenue. California has a $4.2 billion surplus. New York has $2 billion in extra cash. Across the country, state revenue is up 3.8 percent over last year, according to the National Association of State Budget Officials.
But in Pennsylvania, the picture isn’t as rosy. As he seeks reelection this year, Gov. Tom Corbett (R) is dealing with a budget deficit of more than $1 billion. So why, when other states are rolling in dough, is Pennsylvania still drowning in red ink?
Corbett’s critics say tax cuts the governor pushed through the Republican-dominated legislature are to blame. In 2011, Corbett backed cuts to the state’s capital stock and franchise tax that cost the state almost $600 million a year.
The state also made changes to its bank shares tax, which, though billed as revenue-neutral, has cost about $25 million. That’s a small amount on its face, but over time, that money adds up. All told, Corbett has signed legislation cutting taxes on businesses by about $1.2 billion since taking office.
The state’s tax structure isn’t suited to the kind of recovery the country is experiencing, either. Pennsylvania has a flat income tax, meaning someone making $1 million a year pays the same percentage as someone making $100,000, or $50,000. When the wealthy made more money in California, they paid more in taxes, because of the graduated tax rate; not so in Pennsylvania.
“The income growth in Pennsylvania, like the rest of the country, has been at the top. So over time, we’re at a disadvantage,” said Sharon Ward, director of the Pennsylvania Budget and Policy Center, a left-leaning think tank.
Corbett has proposed more tax cuts. The governor’s 2013-2014 budget proposal includes a reduction in the state’s corporate net income tax from 9.99 percent to 6.99 percent, to be phased in over a 10-year period. That could cost the state north of $770 million per year, based on current tax collections, the Pennsylvania Budget and Policy Center reported. Corbett also called for a phase-out of the capital stock and franchise tax.
Corbett campaigned on a no-new-taxes pledge, and he’s stuck to that. If he continues to do so, it means more cuts in the future.
Corbett’s administration places the blame squarely on his predecessor, Democrat Ed Rendell. Corbett entered office in 2011 facing a $4.2 billion deficit, a hole from which the state is still recovering.
“I don’t know that we missed the trend. Because of the prior administration, the governor came into office well behind the starting line,” state budget director Charles Zogby told the Pittsburgh Tribune-Review. “They not only cleaned out the cupboards bare, they took the cupboards too.”
Rendell’s office disputes that charge, pointing to $1 billion in funds that carried over from his last budget to Corbett’s first. State revenue in 2011 was up $1.5 billion over the previous year, rebounding to nearly pre-recession levels.
Whatever is to blame, the bottom line remains: Most states are finally reversing the painful trends of the recession. Pennsylvania hasn’t fully recovered. Corbett’s reelection bid may suffer because of that fact.