Oped: State revenue plan coming up short
Less than three months after the 2016-17 fiscal year state budget became law, it’s still not balanced, and the state is now staring down a deficit that’s in the hundreds of millions of dollars thanks in part to under-performing tax revenue generators and questionable revenue assumptions.
General Fund revenue collections for the month of September were $2.6 billion, which was $144.9 million, or 5.2 percent, less than anticipated. The collection of $472.7 million in corporation taxes came in below projections by $49.9 million. Sales tax collection of $811.5 million was $20.5 million below what was expected. The Personal Income Taxes collected was $1.1 billion, which was below estimate by $36.6 million, the Department of Revenue recently reported. For the fiscal year, general fund collections of $6.6 billion are down by $218.5 million, or 3.2 percent, from what was estimated.
Other General Fund tax revenue, which includes cigarette, malt beverage, liquor and table games taxes, totaled $157.3 million in September, $10.6 million less than estimated. The new figures bring the fiscal year-to-date total to $402.1 million, which is $10 million, or 2.5 percent, below estimate.
Looking forward, wine sale modernization, which allowed wine to be sold in select grocery stores and other locations, is expected to come up $76 million less than what the Legislature expected this fiscal year. The $2.60 tax on a pack of cigarettes, up from the old $1.60 per pack rate, and additional taxes on other tobacco products, such as e-cigarettes, are expected to be $38 million shy of what was expected. Additionally, the state will also be out $75 million because the builder of a proposed Philadelphia casino is not likely to secure its license this year.
To make up for the ongoing underperforming revenue generators, the state Treasury Department stepped in and provided a $1.2 billion loan to prevent the state from running out of money until it receives more tax revenue. In August, the state withdrew $400 million from its $2.5 billion line of credit with the Treasury Department. The latest $1.2 billion loan marks the fourth time in two years the state has had to rely on the creditor to cover its bills. The loan is not likely to be the last the state will have to secure.
The drop in cigarette tax revenue is despite the massive, 62.5 percent increase. At $2.60 per pack, Pennsylvania boasts the 10th highest cigarette tax in the country, and some Keystone State smokers may be heading to neighboring states that have lower tax rates. In Ohio and Delaware, the tax on a pack of smokes is $1.60, in Maryland the tax is $2, and West Virginia charges just $1.20 per pack after a recent increase from 55 cents. Only New Jersey – where the rate is $2.70 per pack (the ninth highest in the nation) and New York, which has the highest tax rate in the nation at $4.35 per pack, have higher rates than Pennsylvania in the states that surround it.
When Pennsylvanians leave Pennsylvania to buy their cigarettes, the state will lose out in revenue, just as New York witnessed. In 2015, New York officials said the state lost out on $400 million in cigarette tax collection in the five years since it raised the rate in 2010. Smokers there crossed state lines, bought from Native American outlets where the state tax isn’t applied or got their smokes illegally on the black market.
Already, federal law enforcement officials have witnessed a rise in illicit tobacco sales in Philadelphia and it’s expected to spread across the state, Department of Homeland Security, ATF, National Cyber-Forensics and Training Alliance (NCFTA) and industry specialists said. But efforts are being made to quash the black market in Philadelphia.
Pennsylvania’s higher cigarette tax will also price some people out of smoking. According to the Commonwealth Foundation, there’s typically a 4 percent decrease in the consumption of cigarettes when the price goes up 10 percent.
State government has long been urging people to kick the habit, and it appears it’s succeeding by making smoking too expensive. Unfortunately, the state is also relying on those same people to continue to smoke so it can fund its budget.
Also included in the revenue plan, which I voted against, a 40 percent wholesale is now being imposed on e-cigarettes and is expected to put many vape shops out of business, which will lead to people being put out of work. On top of unemployment for those workers, the state can expect to see less sales tax and Personal Income Tax revenue. How much less remains to be seen, but when revenue is already not meeting projections, additional lost revenue will have a major impact on the state’s coffers.
Instead of looking to taxpayers to continue to foot the bill for the expansive growth of state government, we as policymakers must first address the cost drivers of our budget through policy change. We must then look to grow revenue, not through tax rate changes, but through economic growth. Every new job, every new raise a Pennsylvanian receives is new tax revenue through our current Personal Income Tax or Sales and Use Tax. This is the model we need to use to address Pennsylvania’s financial situation, not the status quo of taxing and spending.
— Rep Seth Grove, R-Dover Township, represents the 196th District in the Pennsylvania House of Representatives.