






































COMMONWEALTH Forum: Addressing Pennsylvania’s Structural Budget Deficit


COMMONWEALTH, Volume 20, Issue 1 (2018). © 2018 The Pennsylvania Political Science Association.  
ISSN 2469-7672 (online). http://dx.doi.org/10.15367/com.v20i1.177. All rights reserved.

COMMONWEALTH Forum

Addressing Pennsylvania’s  

Structural Budget Deficit

In November 2016 Pennsylvania’s Independent Fiscal Office released a five-
year projection of the health of the Commonwealth’s economy and budget. The 
long-term estimates were not promising, as increasing expenditures outstripped 
existing sources of revenues. Left unchanged, the status quo would result in a 
deficit of almost $3 billion in fiscal year 2021–2022. Tackling this “structural 
deficit” is one of the most difficult issues facing the state of Pennsylvania. Given 
the current political climate it should come as no surprise that there is no con-
sensus on resolving this problem. COMMONWEALTH invited representa-
tives from two very different policy perspectives to provide their solutions to 
the structural deficit. We would like to thank Bob Dick of the Commonwealth 
Foundation and Marc Stier of the Pennsylvania Budget and Policy Center for 
addressing this important issue in the COMMONWEALTH Forum.



4 BoB Dick

Revitalizing Pennsylvania  
through Government Reform

BOB DICK
Commonwealth Foundation

Pennsylvania is in financial crisis. The growth in government spending, 
which has risen every year but one since 1970 (Commonwealth Foun-
dation 2016), is at the heart of this crisis. As of July 2017, the Common-

wealth’s budget deficit is approximately $2.2 billion (Levy 2017a)—a product 
of real and projected expenditures exceeding revenues in prior and current 
fiscal years. Pennsylvania’s Independent Fiscal Office (IFO 2016) projects this 
trend will continue through the 2021–2022 fiscal year absent significant policy 
changes (Ryan 2017). 

The IFO isn’t the only organization with a bleak view of the state’s budget 
situation. The Mercatus Center recently released a report on the fiscal health 
of all 50 states, ranking them based on key metrics used to analyze short- and 
long-term solvency (Norcross and Gonzalez 2016). Pennsylvania placed 46th, 
beating four other states and Puerto Rico, including Illinois and New Jersey—
states beset with monumental financial challenges.

Standard & Poor’s has also expressed concerns about Pennsylvania’s fis-
cal condition, warning that unless the state passes a balanced budget and 
addresses the underlying causes of the structural budget deficit, it faces a pos-
sible credit rating downgrade (Braun 2017). These warnings concern most 
everyone, but policymakers are divided over the solution. Some believe raising 
taxes is necessary to fix Pennsylvania’s finances. The most prominent and 
vocal advocate of this idea is Governor Tom Wolf, who has proposed eight 
different tax hike plans over the course of three years (Commonwealth Foun-
dation 2017a). His last budget proposal would have raised taxes by $1 billion 
while making modest reforms to control state spending (Pennsylvania Office 
of the Budget 2017).

In contrast, many fiscally conservative lawmakers prefer spending 
restraint in the General Fund budget—which makes up approximately 40% of 
the state’s total operating budget—and reforms to bring about long-term fis-
cal stability. In April, House Republicans passed a General Fund budget that 
would have limited spending growth and required no tax hikes (Dick 2017a). 
The state Senate eventually amended the plan to include a larger spending 
increase. Governor Wolf allowed this plan to become law, despite lawmakers’ 
inability to raise enough revenue to balance the budget as of July 2017 (Cou-
loumbis and Langley 2017). This is the second year in a row the state’s budget 



COMMONWEALTH Forum 5

became law without sufficient revenues to pay for authorized spending (Meyer 
2017), though the move appears to violate legal and constitutional balanced 
budget mandates.

How should lawmakers solve these intractable fiscal problems? First, they 
must reject tax increases, which stifle economic growth and destabilize the 
state’s finances. Economic growth is key to turning the state’s budget situa-
tion around. Any policies that could suppress this growth should be rejected.

In testimony before the U.S. House of Representatives Committee on 
Ways and Means, economist Jonathan Williams compared job growth from 
March 2007–March 2017 in states without an income tax to states with the 
highest income taxes. He found no-income-tax states grew 28% faster than 
the highest-income-tax states. Population also grew 111% faster in no-income-
tax states (Williams 2017). These findings are not an aberration. Dr. William 
McBride authored a report on the effects of taxes on economic growth, which 
included a literature review of 26 studies on this topic—all but three of which 
concluded taxes negatively affect economic growth (2012).

Advocates of a more robust role for government see high taxes as a pana-
cea, but a high tax burden can harm a state’s finances and economy (Stansel, 
Torra, and McMahon 2016). Indeed, the 10 states in the best fiscal condition—
per the above-noted Mercatus Center report—had an average tax burden of 
8.48% compared to 10.12% for the 10 states in the worst fiscal condition (Tax 
Foundation 2012).

Some of the highest-taxed states in the country—Maryland, Illinois, and 
New Jersey—are in the worst fiscal shape, proof that high taxes won’t bring 
budget relief and will likely exacerbate budget difficulties. Two recent exam-
ples illustrate this fact. The first is Connecticut. To deal with budget deficits, 
the state—over five years—enacted the two largest tax increases in its his-
tory (Fitch 2017). However, these increases could not keep up with spending 
growth, and lawmakers are now grappling with a $5.1 billion deficit (De Avila 
2017).

In Pennsylvania, lawmakers enacted a $650 million tax increase pack-
age in July 2016 (Levy 2017b) to pay—in part—for a tremendous increase 
in government spending. It wasn’t enough. The state ended the fiscal year 
with a $1.5–$1.6 billion deficit (Esack 2017). The tax not only failed to sta-
bilize the Commonwealth’s budget situation, it also closed dozens of small 
businesses (Gonzalez 2017). These regrettable examples of counterproduc-
tive fiscal policy should serve as a warning to policymakers as they grapple 
with the tough decisions needed to rescue Pennsylvania from financial ruin. 
Policymakers can either let the economy grow or grow government. They 
can’t do both.



6 BoB Dick

Since tax hikes aren’t a viable solution, policymakers must focus on the 
spending side of Pennsylvania’s balance sheet. Critics of this approach tend to 
assert state government is “cut to the bone,” which means lawmakers have very 
few options—if any—to reduce government outlays. But a thorough review of 
the state’s total operating budget reveals numerous cost-saving opportunities. 
The following six broad solutions are not exhaustive but represent some of the 
most transformative options available to lawmakers.

Reform Medicaid to Encourage Independence

The Pennsylvania Department of Human Services (DHS), which houses most 
welfare programs, consumes approximately 39% of the General Fund bud-
get (Pennsylvania House Republican Appropriations Committee 2017). It is 
the most expensive department in the total operating budget (which includes 
federal funds and other “off budget” funding). According to the IFO, welfare 
spending will grow at 5.8% annually. In contrast, personal income growth 
will be just 4.3% (2016). If these trends are left unchecked, DHS will continue 
to outgrow the economy, requiring additional resources from taxpayers, who 
already labor under the 15th-highest tax burden in the country (Tax Founda-
tion 2016). Any effort to tackle the current fiscal crisis must focus on reducing 
poverty by redesigning the state’s welfare programs—specifically Medicaid, 
the largest expense in the state budget.

Lawmakers can reform Medicaid—a program that consistently under-
serves the poor (HealthPocket 2015)—by converting it to a premium assis-
tance support program. This would put Medicaid recipients in charge of 
purchasing their own health insurance with allotted funds. State lawmakers 
have also advanced work requirements and copays for able-bodied adults and 
wealthy families (Thompson 2017). Work requirements combined with time 
limits on Medicaid can help able-bodied adults transition away from gov-
ernment assistance and reduce lengthy waiting lists for those truly in need, 
without requiring new revenue.

Expand School Choice

In 2015–2016, the latest year for which data is available, the typical Penn-
sylvania public school received approximately $16,500 per student in local, 
state, and federal funding. This represents a 16.5% increase over the past five 
years. Pennsylvania ranks in the top 10 in education spending as of 2013–
2014 (Commonwealth Foundation 2017c). Yet, lawmakers increase education 
spending year after year under the unproven assumption that more spending 



COMMONWEALTH Forum 7

improves academic achievement. Research, however, shows no correlation 
between academic achievement and education spending. Who spends these 
dollars, not simply how much is spent, is the real difference-maker. If dollars 
are placed in the hands of parents via school choice programs, educational 
outcomes improve, and taxpayers save (Forster 2016).

Pennsylvania’s two private school choice programs—the Educational 
Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit 
(OSTC)—spend a fraction of what traditional public schools spend on a per-
student basis. In 2014–2015, average scholarship amounts for the EITC and 
OSTC were $1,775 and $2,300 respectively. Expanding these programs to 
more public school families would not only provide educational lifelines to 
thousands of students but also deliver cost savings for taxpayers. Of course, 
this requires a paradigm shift for those under the mistaken assumption that 
a large government bureaucracy is necessary to adequately educate students.

Overhaul the Criminal Justice System

At more than $2.3 billion, Pennsylvania’s corrections system is the third larg-
est expense in the General Fund budget. Although it has undergone signifi-
cant changes over the last five years, more reforms are necessary. A recent 
report from Justice Reinvestment Initiative (JRI) Working Group (2017) notes 
the Commonwealth can save more than $108 million over five years by reduc-
ing the prison population via several changes to the criminal justice system, 
including but not limited to the following:

Release prisoners once their minimum sentence has been completed. Peo-
ple inside the state’s prison facilities are often held past their minimum sen-
tence—by an average of 5.3 months. This extra prison time costs taxpayers 
tens of millions of dollars and does little to reduce recidivism. Releasing pris-
oners on time can save tax dollars without jeopardizing public safety.

Increase guidance provided by sentencing guidelines. Current guidelines 
permit a wide range of sentences for the same crime, meaning sentences can 
be counterproductive or punitive. Providing judges with more information 
on the efficacy of sentences (i.e., which sentences lower recidivism) should be 
a top priority. This way, judges can issue fair sentences based on all relevant 
information. The current system relegates too many to prison unfairly, mak-
ing it more difficult for inmates to return to normal life.

Improve parole supervision. The JRI Working Group proposes adopting 
admission criteria for community corrections facilities (also known as half-
way houses) based on risk and parolees’ needs. The working group also sug-
gests using short sanctions instead of incarceration for parole violators. The 



8 BoB Dick

former has proven effective in changing the behavior of violators and is a less 
expensive alternative to incarceration.

These recommendations focus on an important goal: transitioning people 
from prison back to society while keeping low-risk offenders out of prison. 
A criminal justice system that promotes independence will help the Com-
monwealth reduce incarceration costs while freeing resources to address more 
dangerous offenders who pose a threat to society.

Curtail State Borrowing

Debt service is the fourth largest state expense behind welfare, education, and 
corrections. Since 2002, total outstanding state general obligation debt has 
increased by 97%, from $6.8 billion to $12.3 billion. Annual debt payments 
on general obligation bonds increased from $349 million in FY 2002–2003 
to more than $1.1 billion in FY 2016–2017, a 218% jump (Commonwealth 
Foundation 2017c). This massive increase makes the Department of Treasury 
the fastest growing department over the last 15 years.

To avoid adding to taxpayers’ debt load, lawmakers should limit or elimi-
nate borrowing for some of the state’s nonessential programs. Among these 
is the Redevelopment Assistance Capital Program (RACP), which authorizes 
wasteful “economic development” projects across the state. Some of the most 
infamous projects have included monuments to politicians, handouts to cor-
porations, and subsidies for stadiums (Benefield 2010). There is no evidence 
of this program boosting overall economic growth in the Commonwealth. 
Moreover, the program tends to favor the largest Pennsylvania cities over 
smaller towns (Millsap 2015).

A cap on borrowing for Public Improvement Projects (PIP) is also criti-
cal. Together, these two programs represent about 43% of gross debt service. 
Eventually phasing out RACP and putting strict limits on PIP can help drive 
down the cost curve on state debt, freeing funds for other priorities such as 
law enforcement or tax relief.

Reduce or Eliminate Nonessential Spending

The Commonwealth Foundation recently identified more than $3 billion in 
available funds (Dick 2017b) that could be redirected to balance the state’s 
General Fund budget. These “off-budget” programs generally operate outside 
legislative scrutiny. They include corporate welfare programs—like nearly 
$250 million for the Race Horse Development Fund, which finances race 



COMMONWEALTH Forum 9

purses (prizes) for horse owners—and more than $95 million for the Keystone 
Recreation, Park and Conservation Fund, which provides appropriations for 
recreational activities and facilities. This fund has financed projects such as 
an African Wild Dog Exhibit and an Athletic Fields Feasibility Study. This 
special interest spending is pervasive throughout the state budget and should 
be reduced or eliminated permanently. Redirecting these and other funds can 
provide a stable source of revenue to truly balance the state’s General Fund 
budget.

Enact Budget Safeguards

Too often, state spending is left unevaluated and grows without limit, to tax-
payers’ detriment. Lawmakers can implement two safeguards to end Penn-
sylvania’s broken budget process. The first is performance-based budgeting, 
which would require an independent analysis of state programs to determine 
their effectiveness. If a program is deemed ineffective, based on certain objec-
tive criteria, it could be scheduled for elimination unless lawmakers vote to 
protect the program or reform it to address deficiencies. Performance-based 
budgeting would take at least a portion of state spending off autopilot and 
require periodic examination of programs. It would also increase account-
ability, requiring lawmakers to go on record as defending or reforming a given 
program.

State expenditure limits are the second safeguard. Under this proposal, 
state spending would not be permitted to grow faster than the combined rate 
of inflation and population growth—known as the Taxpayer Protection Act 
index. This proposal would require lawmakers to prioritize spending and 
ensure any surplus revenue is deposited in a rainy-day fund or used to reduce 
taxes. Had state spending limits been in place since 2003, taxpayers would 
have saved a cumulative $29.4 billion or $2,300 per person. Pennsylvania 
would also have ended the 2016–2017 fiscal year with an approximate $2 bil-
lion surplus.

Elected officials on both sides of the political aisle mistakenly believe 
Pennsylvania has a revenue problem. This assumption has led to calls for 
higher taxes and borrowing to pay overdue bills. A closer look at the evidence 
reveals a different story. The state has failed to control spending for the last 
four and a half decades. Policymakers in Harrisburg must acknowledge this 
truth. Only then can the state begin to repair its finances and implement 
pro-growth policies that will make Pennsylvania the economic hub of the 
Northeast.



10 BoB Dick

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COMMONWEALTH Forum 11

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http://www.pabudget.com/Display/SiteFiles/154/Documents/FY%202017-18%20GF%20Budget/HB%20218/2017-18%20GF%20Budget%20Tracking%20Run.pdf
http://www.pabudget.com/Display/SiteFiles/154/Documents/FY%202017-18%20GF%20Budget/HB%20218/2017-18%20GF%20Budget%20Tracking%20Run.pdf
http://www.budget.pa.gov/PublicationsAndReports/CommonwealthBudget/Documents/2017-18%20Proposed%20Budget/2017-18%20Budget%20Document%20-%20Web.pdf
http://www.budget.pa.gov/PublicationsAndReports/CommonwealthBudget/Documents/2017-18%20Proposed%20Budget/2017-18%20Budget%20Document%20-%20Web.pdf
http://www.budget.pa.gov/PublicationsAndReports/CommonwealthBudget/Documents/2017-18%20Proposed%20Budget/2017-18%20Budget%20Document%20-%20Web.pdf
http://www.ifo.state.pa.us/download.cfm?file=/Resources/Documents/Presentation_Lancaster_Chamber_2017-07-14.pdf
http://www.ifo.state.pa.us/download.cfm?file=/Resources/Documents/Presentation_Lancaster_Chamber_2017-07-14.pdf
https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-north-america-2016.pdf
https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-north-america-2016.pdf


12 BoB Dick

Tax Foundation. 2016. “State-Local Tax Burden Rankings FY 2012.” January 20. Available 
at https://taxfoundation.org/state-local-tax-burden-rankings-fy-2012/. Accessed July 
14, 2017.

Thompson, Charles. 2017. “Medicaid Politics Comes to Harrisburg via Pennsylvania’s 
State Budget Debate. PennLive, July 15. Available at http://www.pennlive.com/ 
politics/index.ssf/2017/07/medicaid_politics_comes_to_har.html. Accessed July 19, 
2017.

Williams, Jonathan. 2017. “United States House of Representatives Committee on Ways 
and Means Written Testimony.” American Legislative Exchange Council. May 18. 
Available at https://www.alec.org/article/united-states-house-of-representatives 
-committee-on-ways-and-means-written-testimony/. Accessed July 14, 2017.

Bob Dick is a senior policy analyst for the Commonwealth Foundation—Pennsylvania’s 
free market think tank. His main areas of focus include fiscal policy and labor policy. His 
work has appeared in the Pittsburgh Tribune-Review, Harrisburg Patriot News, Allentown 
Morning Call, The Intelligencer, the Delaware County Times, and the Philadelphia Inquirer. 
He graduated summa cum laude from Neumann University with a degree in political 
science in 2012.

https://taxfoundation.org/state-local-tax-burden-rankings-fy-2012/
http://www.pennlive.com/politics/index.ssf/2017/07/medicaid_politics_comes_to_har.html
http://www.pennlive.com/politics/index.ssf/2017/07/medicaid_politics_comes_to_har.html
https://www.alec.org/article/united-states-house-of-representatives-committee-on-ways-and-means-written-testimony/
https://www.alec.org/article/united-states-house-of-representatives-committee-on-ways-and-means-written-testimony/


COMMONWEALTH Forum 13

The Continuing Pennsylvania Crisis  
in Perspective

MARC STIER
Pennsylvania Budget and Policy Center

The Rise of the Right in Pennsylvania Politics

Fads

There are fads in politics, like every other human endeavor. One such fad has, 
in the last 10 years, wreaked havoc with the finances of states in every part of 
the country—the claim that the path to prosperity can be found in relentless 
cutting of spending and taxes, especially taxes on business.

The Far Right Comes to Pennsylvania

During the late 1990s this ideology took hold here mainly but not entirely 
among Republicans. Even some Democrats embraced the notion that reducing 
taxes, especially on corporations, might spur economic growth. As Governor 
Ed Rendell was raising the personal income tax to fund increased education 
spending, he was cutting corporate taxes. Republicans embraced the theory 
with a vengeance, promising everyone tax cuts, although most tax relief went 
to corporations.

Republicans could cut taxes at the federal level without concern for run-
ning up deficits. But in the states, tax cuts had to be balanced by spending 
cuts. So Republicans needed a rationale for those cuts and came up with one—
arguing, falsely, that public services were growing fast and were too expensive 
because public sector unions were receiving salaries and pensions far above 
those in the private sector.

The Corbett and Wolf Years

The Right Takes Advantage of the Recession

As late as the last years of the twentieth century, the Republican Party in the 
General Assembly was fairly moderate, and leadership tended to come from 
centrists. But ideological shifts in the Republican electorate and district lines 
that empower the far right have gradually led both the House and, to a lesser 
extent, the Senate to move to the right.



14 Marc stier

When the Great Recession took hold and state tax revenues fell dramati-
cally, right-wing Republicans found their opportunity. In the last two years of 
his administration, federal stimulus funds enabled Rendell to balance budgets 
without deep reductions in spending. But as those funds ran out, Pennsyl-
vania, like other states, was faced with the choice of raising new revenues or 
making deep cuts in state spending. The right found an accomplice in Gover-
nor Tom Corbett, who embraced the far-right prescription of budget cutting.

The result was deep reductions in every area. There was a $1 billion cut 
to state funding of K–12 education. And since Pennsylvania had abandoned a 
funding formula for distributing money, those cuts were felt far more deeply 
in poor districts, especially urban but also some rural ones. The result was 
layoffs of over 20,000 teachers, guidance counselors, and librarians. Penn-
sylvania schools, already undersupported by the state, came to be the most 
unequally funded schools in the country, with schools in the most prosperous 
25% of districts spending 33% more than schools in the least prosperous 25% 
of districts.

Reductions of over 30% to higher education had similar effects. Tuition 
went up in the Pennsylvania State System of Higher Education (PASSHE) by 
20%. The Corbett administration cuts on top of a decade of neglect led Penn-
sylvania to fall to fourth from the bottom of all states in funding per college 
student. In 2013 only 56.1% of Pennsylvania adults 25 and over had more than 
a high school degree, ranking us 41st of 50 states.

Governor Corbett and the right-wing General Assembly also drastically 
reduced general assistance to the poor and increased waiting lists for child-
care, mental health, and disability services.

At a time when the growth of natural gas fracking demanded more from 
the Department of Environmental Protection, it suffered similar reductions 
and today remains funded at roughly two-thirds the level it was before the 
Great Recession.

Spending on Pennsylvania’s crumbling infrastructure also fell until, in the 
last year of the Corbett administration, a coalition of business-minded Repub-
licans and Democrats pushed through an increase in gas taxes to restore our 
roads, bridges, and transit systems. The state still remains near the top of the 
list of those with serious infrastructure problems.

Overall General Fund spending in the 15 years before Governor Corbett 
averaged 4.7% of the state GDP. It fell by 7.25% to 4.33% during his years as 
governor. Unfortunately for state finances, tax revenues fell by 8.25%, creat-
ing persistent deficits. The phase-out of the Capital Stock and Franchise Tax 
continued, and Governor Corbett took advantage of a change in federal law 
to reduce the corporate income tax in Pennsylvania by about $300 million. 



COMMONWEALTH Forum 15

Perhaps more important, Corbett and the extremist Republicans refused to 
institute a severance tax on natural gas drilling. Although the state has huge 
natural gas reserves that are relatively cheap to exploit, we remain the only 
state without a severance tax, costing Pennsylvania billions in revenue dur-
ing the Corbett years and about $300 million a year since gas prices dropped.

The Wolf Years

Governor Corbett’s policies were repudiated at the polls in 2014 when he 
became the first Pennsylvania governor ever to be defeated for reelection. But 
even though Governor Wolf promised to reverse the direction of the state, the 
General Assembly continued to tilt even further to the right as a result of the 
impact of partisan redistricting and national political trends in 2014 and 2016.

The Republican General Assembly has forced additional spending cuts, as 
General Fund spending as a share of GDP continued to decline under Gov-
ernor Wolf to 4.25%. Even including special funds, spending as a share of 
GDP has fallen from 7.36% to 6.91% over 15 years. (It is misleading to include 
federal spending in Pennsylvania for such things as Medicaid and education 
in the total of state spending.)

Similarly, taxes continue to decline in Pennsylvania as the state has fallen 
to 23rd among all states in taxes per capita. (Again, it is misleading to count 
taxes paid by relatively well-off Pennsylvanians to the federal government as 
part of state taxes.)

The Wolf administration’s effort to find over $1.5 billion in efficiencies 
has enabled it to direct more money to K–12 education, while also meeting 
mandatory cost increases in corrections, Medicaid, and pension costs. The 
Corbett cuts to education have been fully restored for the most prosperous 
school districts and partially restored for the least prosperous ones. While this 
is an important achievement, Pennsylvania still needs to spend billions more 
to equitably and adequately fund every school.

The Wolf administration has also directed small increases to human ser-
vices, especially for opioid addiction, child care, and services for the intellec-
tually disabled, and for the PASSHE colleges and universities.

Recurring Deficits

Despite these increases, budgets under Governor Wolf have remained austere, 
in no small part because the state has started each year with a deficit between 
$1 and $1.5 billion just to provide the same level of services as in the previous 
year.



16 Marc stier

The deficits have long- and short-term causes. The long-term cause is the 
decline in tax revenues, especially from corporate taxes, which have fallen 
from 30% of all revenues in 1972 to 20% in 2006, to only 15% this year. If 
corporate taxes still made up 20% of all revenues, the state would bring in an 
additional $2.3 billion per year, enough to close the yearly budget deficit while 
also increasing public investment.

The short-term cause of recurring deficits is that, except for increases in 
tobacco taxes in 2016–2017, the General Assembly has refused to raise recur-
ring revenues, preferring to balance the budget with one-year funds, such as 
the sales of licenses to sell liquor or promote gambling, and budget gimmicks 
such as borrowing from (or raiding) special funds that serve important state 
purposes, overestimating revenues, and shifting spending from one fiscal year 
to the next.

Republicans in the General Assembly insist on balancing budgets with 
smoke and mirrors rather than real revenues for two ideologically based 
reasons. On the one hand, they oppose new taxes. On the other, continuing 
budget deficits serve as a political cudgel to force deeper cuts in spending. 
It can be an effective tactic, especially when paired with the false claim that 
spending increases, rather than tax reductions, are the main source of budget 
deficits.

The Failure of the Right and Another Path

Economic Distress in Pennsylvania and Beyond

The United States conducted a natural experiment in political economy in 
the years after the Great Recession as some states responded to declining rev-
enues with deep cuts in public spending and taxes while others raised taxes, 
especially on the rich, and increased spending especially for pre-K, K–12 and 
higher education.

Today, the states that raised taxes and spending, such as California and 
Minnesota, are growing relatively fast, have balanced state budgets, and have 
rising wages. The states that cut spending and taxes, such as Kansas and Loui-
siana, have found themselves in a deepening morass as spending reductions 
have slowed their economies and wage growth and, together with tax cuts, 
further reduced revenues creating deep budget deficits.

Pennsylvania did not go as far as Kansas and Louisiana in cutting spend-
ing and taxes, but the cuts of the Corbett years reduced economic growth 
and worsened deficits. And, together with our failure to raise the minimum 
wage, the decline in public investment in the state explains why wage growth 



COMMONWEALTH Forum 17

remains below all of our neighboring states, especially for those in the bottom 
20% of wage earners.

A Way Forward

The recent action by a bipartisan group of Pennsylvania senators, to raise 
recurring revenues and institute a small severance tax to balance the budget 
for the current year, suggests that here, as in Kansas, the right-wing tax- and 
budget-cutting fever may be breaking. So perhaps the time has come to put 
forward another direction for the state. A growing body of evidence clearly 
shows that, far from harming the economy, public investment, especially in 
infrastructure and education at all levels, including training for those who do 
not go to college, is critical to economic growth and especially growth that 
benefits low- as well as high-income Pennsylvanians.

The question, however, is how to pay for investment in a way that is fair 
and politically palatable at a time when slow income growth for all but the 
top 1% makes tax increases unpopular. That’s a particularly difficult problem 
because we have a Constitutional uniformity clause that prohibits graduated 
tax rates. As a result, we have one of the most inequitable tax systems in the 
country. Families in the bottom quintile pay 12% of their income in state and 
local taxes, families in the middle quintile pay 10%, and those in the top 1% 
pay only 4.3%.

To address that problem, we have supported closing corporate tax loop-
holes and a severance tax that in the next few years would bring in $1 billion 
a year. We have also called for a Fair Share Tax that would increase the tax 
rate on income from wealth (capital gains, business profits, dividends, royal-
ties, and estates) while reducing the rate on wages and interest. Increasing 
the tax on income from wealth from the current 3.07% to 6.5% combined 
with reducing the rate on wages and interest to 2.8% would raise $2 billion, 
while cutting taxes for 60% of Pennsylvanians and leaving taxes unchanged 
for another 25%. Over 50% of the new revenue would come from the top 1%, 
and 82% would come from the top 5% of households. And yet taxes on the 
top 1% would remain below those of all neighboring states and half the rate 
of New York and New Jersey.

Conclusion

Right now, Pennsylvania’s government is torn between a Republican General 
Assembly that is still in the grip of radical right-wing ideas that mainly benefit 
the very rich and corporations and a Democratic governor who recognizes 



18 Marc stier

that broadly shared prosperity requires selective increases in public invest-
ment paid for by new, and equitable, taxation. It is up to the people of Penn-
sylvania to choose between these two paths forward. 

Marc stier serves as Director of the Pennsylvania Budget and Policy Center. He has also 
served as the executive director of Penn ACTION, the Pennsylvania director of Health 
Care for America Now, and the Health Care Campaign Manager for SEIU Pennsylvania 
State Council. Stier has a bachelor’s degree from Wesleyan University and a doctorate 
from Harvard University, both in political science. He was an academic for 25 years and 
has taught at the University of Alaska, Fairbanks, City College of New York, the Univer-
sity of North Carolina, Charlotte, and Temple University. Stier is the author of numerous 
papers on political philosophy, the history of political thought, and American politics. He 
is the author of Grassroots Advocacy and Health Care Reform, Liberalism and Communi-
tarianism Revisited and Civilization and Its Contents: Reflections on Sex and the Culture 
Wars and co-editor of Ambiguity in the Western Tradition. 


	COMMONWEALTH Volume 20 Issue 1 2018  2018 The Pennsylvania Political Science Association: 
	Bob Dick is a senior policy analyst for the Commonwealth FoundationPennsylvanias: 
	Marc stier serves as Director of the Pennsylvania Budget and Policy Center He has also: 


