Quality of life in Pennsylvania is acceptable, but the commonwealth is underperforming and can do better, a member of the governor’s executive staff said Tuesday.
That belief is what drives Gov. Tom Wolf’s recently unveiled budget proposal, Director of Planning and Policy John Hanger said at a Chamber of Business and Industry of Centre County breakfast event.
“The governor has proposed, by all accounts, even those critical of it, a bold budget plan,” Hanger said.
Pennsylvania has underperformed for the past 30 to 40 years, he said. Within the past four to six years, the state has faced five debt downgrades — three within the past year — and Wall Street has lost confidence in the budgeting process in Harrisburg.
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The projected deficit for the fiscal year starting July 1 is between $1.5 billion and $2.3 billion, he said, indicating the structural deficit the state is facing.
Hanger outlined three of the proposed budget’s major highlights.
First, he said, Wolf is proposing a significant cut in the corporate net income tax and an end to the capital stock and franchise tax.
Capital stock and franchise taxes apply to corporations with capital stock or trusts doing business in the state, according to the state Department of Revenue.
As a businessman, Hanger said, the governor has seen the corporate net income rate of 9.99 percent paid by about 30 percent of businesses in the state, doing damage to those businesses. He likened it to a scarlet letter in terms of attractiveness of the state to other investors.
“In more than a few cases,” he said, “if they hear that Pennsylvania has a CNI rate of 9.99, that pretty much ends the conversation.
“It’s a ball and chain for the state’s ability to attract business investment.”
Wolf is determined to reposition corporate taxes to make the state more attractive and competitive, he said. The cut would drop Pennsylvania from having the second highest corporate tax rate in the country to having the fourth lowest. This would eventually drop the CNI rate to 4.99 percent.
Property tax also has become burden to many communities, Hanger said, specifically to school districts.
Wolf proposes substantial property tax reliefs, he said, potentially cutting the typical residential school taxpayer’s property tax in half.
High property taxes make whole communities uncompetitive for investment, he said. A cut would increase property values across the state, increasing the single biggest piece of wealth for many residents — their home.
Second, Wolf campaigned on a platform of education funding, Hanger said, and has proposed about $1 billion in new investment in education.
This would restore at least half the cuts made to higher education during the previous administration, he said, adding substantial funding to education across the board — from early childhood development and K-12 to higher and technical education.
Wolf’s budget already has promised a $49.6 million funding increase to Penn State, about 23 percent more than the $214 million Penn State is getting from the state this year.
Finally, the proposed budget calls for a tax on natural gas similar to the tax in place in West Virginia, he said.
The current impact fee would be maintained, he said, including the uses of money generated by the fee.
To pay for the reductions and investments, Wolf proposes setting the personal income tax rate at 3.7 percent and raising the sales tax to 6.6 percent, Hanger said. That would bring Pennsylvania to the third lowest income tax rate among states with an income tax.
Additionally, Wolf is looking at House Bill 76, he said, which could broaden the sales tax base, adding a tax to various services that are not currently taxed.
Excluded from the 6.6 percent sales tax would be food, clothing, prescription drugs and other items, he said.
When questioned about pension reform, Hanger said proposed changes would reduce unfunded liability by $10 million, but Wolf is ready to listen and work with legislators on that issue.
“We are at this place because the state didn’t make a contribution for 17 years,” he said. “That’s fundamentally why we have this problem.”
Under the proposed budget, he said, the State Employees’ Retirement System will be at the actuary-required contribution for this year, while the Public School Employees’ Retirement System will be at the contribution by next year.