(The Center Square) — Pennsylvania’s general fund revenues have stayed healthy, and may outpace 2021 by 4%. However, inflation pressures that have driven up the costs of goods and services paid for by the state put a damper on extra revenues.
An analysis from the Allegheny Institute highlighted the revenue boost that shows Pennsylvania’s fiscal recovery from the pandemic.
“The national inflationary economy has benefited the commonwealth’s general fund tax coffers as prices for both goods and wages have been pushed up by levels not seen in decades,” the analysis noted. “However, the danger is in thinking this economic situation will continue. Policymakers must resist the temptation to engage in spending sprees that cannot be sustained when the inevitable downturn happens.”
The trouble is that while higher prices have pushed up tax revenues, the higher prices also will require more spending by the state for goods and services it already purchases.
“The jump in revenue may be needed to sustain real spending levels,” the analysis noted.
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Through October, general fund revenues hit about $38.5 billion, $5 billion more than calendar year 2021. If trends continue, revenues will hit $46.2 billion in calendar year 2022, 4% higher. From 2010 to 2019, revenues grew by 32%; but that growth has noticeably accelerated. From 2019 to 2022, the growth rate will hit 31%.
The personal income tax remains the biggest source of money for the state, 35%, followed by sales and use taxes that comprise 30%.
If inflation makes the revenue boost simply a way for the state to keep up with costs, the short-term picture is relatively unchanged. Long-term budget problems might emerge, however, thanks to a drop-off in the workforce. The Independent Fiscal Office has warned of the state’s shrinking workforce potentially turning the budget surplus into a budget deficit as state spending growth outpaces tax revenue growth.
Recent Census data that shows 40,000 Pennsylvanians left the state in 2022 is part of a long-term trend that state leaders have failed to fix.
The Allegheny Institute analysis advocated cutting corporate taxes to spur business growth, as well as labor reforms that would limit public workers to strike and abolish the prevailing wage law.
“These are steps that would go a long way in reducing the cost of government, reduce the reliance on such high tax collections and make Pennsylvania more economically competitive nationally,” the Institute noted.
Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.