Lessons to Learn from Other States’ Revenue Woes

Just how difficult will it be to balance Pennsylvania’s state budget without any additional revenue? A WHOLE LOT, according to two state budget experts speaking on WITF’s Radio Smart Talk this week.

Todd Haggerty, a fiscal analyst with the National Conference of State Legislatures, said it will be very difficult for states to solve massive revenue shortfalls in the 2011-12 fiscal year without raising additional revenue. This will be the first budget year since the Great Recession took hold that states won’t have the help of federal recovery dollars for education, health care and other costs.

Even more instructive for Pennsylvania is something Mr. Haggerty said when asked about efforts in the state to enact an extraction, or severance, tax on natural gas drilling:

Well, I think that that’s part of a larger question that you see a lot of states addressing right now, and that is they are looking at their tax systems comprehensively and saying are we competitive, are we being equitable, are we getting the most for what we’re doing? So I think It goes beyond the severance tax issue — but should services be taxed, should the base be broadened? Those kind of questions. Should we look at exemptions that states are giving out and close those up? I think it’s part of a larger conversation about just how revenue systems are being looked at by states and do they meet the changing economy of the country.

That’s an undertaking that would make a lot of sense in Pennsylvania, but it hasn’t really happened. Why? Strong anti-tax advocates often paint any effort to bring our revenue system in line with the "changing economy" as a tax increase that will drive jobs away.

Elizabeth McNichol, a Senior Fellow with the Center on Budget and Policy Priorities, however, pointed out a salient fact that gets lost in these debates — businesses don’t based their location and hiring decisions solely on tax rates:

It’s important to know that it’s not just your tax structure that affects your attractiveness to businesses. Businesses need trained workers. The spending side of the budget as well as the tax side of the budget is important when you’re figuring out how to make yourself most attractive to businesses.

Smart Talk host Craig Cohen asked his two guests throughout the show what lessons Pennsylvania can learn from the revenue woes of other states. These are just a few.


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