IFO Projects $500 Million Less Revenue in Next Budget

Pennsylvania General Fund revenue collections came in $32 million above projections for April, putting the fiscal year-to-date surplus at $67 million, a scant 0.3% over official budget estimates.

The same day April's revenue report came out the Independent Fiscal Office (IFO) released the first official look at future revenues since the Governor’s budget was released in February — and the news is not good.

The IFO’s forecasts for the rest of 2012-13 and for 2013-14 are more than $500 million less than revenue estimates included in the Governor’s February budget proposal — not unexpected as revenue collections have been lackluster over the past three months. This will undoubtedly make budget choices for 2013-14 a lot more difficult than initially expected.

The IFO report projects that in 2013-14 personal income tax collections will increase by 3.5% and sales tax receipts, after anemic growth in 2012-13, will rise by 3.7%.

Corporate taxes, meanwhile, are expected to decline by 7.9% next year, due to the elimination of the capital stock and franchise tax (CSFT) in 2014 and decreasing corporate net income and gross receipts tax collections.

At a time when corporate profits are strong and the stock market is booming, the state tax bills of corporations continue to shrink, even though this approach has yielded few new jobs. Reduced corporate tax revenue also means fewer state dollars will be available to fund schools, infrastructure and other critical investments that do create jobs. Over time, this amounts to a cost shift to local governments and local taxpayers who have to pick up the slack — often in the form of higher property taxes.

The IFO’s report should raise a red flag for lawmakers. This is the wrong time to enact costly new tax cuts for profitable corporations, as legislation before the House of Representatives would do. Instead, lawmakers should consider delaying the phase out of the capital stock and franchise tax and keeping that tax at its current record-low rate. New corporate tax cuts will only come at the expense of investments that really matter to our economy and local communities.

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