Potential Budget Agreement Shell Game, Tax Hike

According to media accounts, there is some movement on the state budget, and it sounds like a bad deal for taxpayers:

"Under the preliminary deal, state spending would rise to $30.7 billion, up about 6 percent from last year’s approved budget. It would be boosted by about $500 million in slot-machine gambling revenue that is currently passed along to homeowners as school property tax cuts. That money would be diverted into a restricted account to pay for public school employee pension obligations.

"The loss of that money for school property tax cuts would be replaced by about $2 billion expected from a state sales tax increase to 7.25 percent, up from the current 6 percent. The rate would rise to 8.25 percent in Allegheny County, where it is currently 7 percent, and to 9.25 percent in Philadelphia, where it is currently 8 percent." (Emphasis added)

Here is the shell game; right now $500 million from slots is being used for property tax "relief". The higher sales tax rate will add $2 billion to that pot. If this were dollar-for-dollar tax relief, $2.5 billion would be paid out to taxpayers, but that is not what happens. Instead, the original $500 million from slots will be spent on pensions leaving only $2 billion for property tax relief. Therefore, this plan is a $500 million tax increase.

Making matters worse, the agreement does not eliminate the pension system for new state employees. Rather, it puts a "cap" (at this point undefined) on pension benefits and adds a 401-k style plan for anything above that cap. We talked about a similar proposal here. The Republicans also have not secured a commitment from the Governor for liquor store privatization.

To sum up: the new budget proposal increases taxes, has weak pension reform, and may not privatize the liquor stores. In short, it is a terrible plan. If this budget plan or something similar becomes law, House and Senate Republican leaders will have abandoned fiscal sanity and should be held accountable.