PA Revenue Growth Strong, But Spending Increasing Faster

Reports out this week from Pennsylvania’s Department of Revenue and Independent Fiscal Office each show healthy tax collections in recent months. But at the same time, an analysis by a nonprofit advocacy group shows that growth in state government has outpaced economic growth over the past 17 years.

The revenue department reported this week that Pennsylvania’s $2.3 billion in collections in November was $95.5 million more than projected.

“Since the start of the 2018-19 fiscal year, overall tax revenue is $913.3 million, or 8.2 percent, more than was collected in the same period of the last fiscal year,” the department reported.

“Monthly “sales and use tax” revenues were $57.8 million over estimate,” the fiscal office reported. ”Nonmotor and motor vehicle collections both topped the forecast for the month by 7.2 [percent] and 3.9 [percent] respectively.”

Both agencies did see one negative as personal income tax was down by $30.2 million in the month compared to the Department of Revenue’s estimates and $16.5 million below the IFO’s projections. The fiscal office saw the decline as being the result of “shortages in both withholding and estimated payments.”

In the meantime, the Pennsylvania-based Commonwealth Foundation has been digging into the IFO’s projection last month that Pennsylvania government could be looking at a $1.7 billion deficit in the next fiscal year. The foundation warned that despite efforts by the Republican-controlled Legislature that have prevented Democratic Gov. Tom Wolf from imposing new taxes, state government growth continues to imperil the state’s economy.

“In the last two years, Pennsylvania’s total operating budget increased from $79.7 [billion] in 2016 to $84.4 billion in 2018,” the foundation’s Elizabeth Stelle wrote. “General Fund spending grew from $31.9 billion to $32.7 billion in 2018. Revenues also grew, but at a much slower rate. Buoyed by federal tax reform and a growing national economy, General Fund revenue climbed from $31.6 billion in 2016 to a projected $34.1 billion by the end of the current fiscal year. State spending continues to grow faster than the economy.”

Stelle noted that the IFO credits the federal tax cuts enacted in December 2017 with injecting $6 billion to $7 billion into Pennsylvania’s economy, making the case that similar tax cuts at the state level could similarly spark economic growth.

“These outcomes make a strong case for sweeping tax reform on the state level,” Stelle wrote. “After all, Pennsylvania still charges one of the highest corporate income tax rates in the nation and caps the net operating loss tax deduction that industries with cyclical incomes, like steel, depend on.”