New Castle News

Closer Look

May 4, 2013

John K. Manna: Shortfall in state tax collections means painful decisions lie ahead

NEW CASTLE — I don’t deny that there are really smart people in Harrisburg who deal with the state’s budget and taxes.

But I have to wonder what any of them — including the governor — think when it comes to taxes.

Nobody has a crystall ball to determine exactly how much revenue taxes will generate in a given year. Budgets, whether they are municipal, state or federal, are simply estimates essentially based on past performance.

So, those who craft a budget shouldn’t be faulted if revenues fall short of estimates.

Through April, despite lagging sales tax collections, the state is about $67 million above estimate in revenue for the fiscal year.

However, that $67 million is expected to be wiped out in no time. The state’s Independent Fiscal Office is estimating that there will be a $520 million shortfall between the estimated general fund revenue and the budget proposed by Gov. Tom Corbett for the next fiscal year beginning July 1.

Corbett has proposed in his budget a reduction of the state’s corporate net income tax from 9.99 percent to 6.99 percent by 2025. The administration projects the changes will generate thousands of jobs and grow Pennsylvania’s economy.

While the administration says it wants to close tax loopholes, Democratic legislators want to go further in closing the Delaware loophole. That loophole allows corporations to register in Delaware to avoid Pennsylvania’s corporate tax.

Who could be opposed to improving the state’s business climate? However, shouldn’t the administration take into account current circumstances?

Reducing corporate taxes while the state is facing a revenue shortfall for the next fiscal year means a couple things could happen. The tax burden is ultimately passed on to individuals or programs are cut, or both.

The question is: Has Corbett considered that a corporate tax cut may impact individual taxpayers?

The key question, however, is whether Corbett will deviate from his February budget proposal to account for the projected revenue shortfall.

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