Republican state lawmakers and Gov. Tom Corbett are blaming Congress for Pennsylvania’s money problems. But economists say the criticism is not warranted.
Pennsylvania’s tax revenue haul in April was almost nine percent below estimates, a fourth straight month that expectations were not met
Senate Appropriations Committee Chairman Jake Corman (R-Centre) said part of the reason is the end of federal tax breaks on capital gains, dividends, and higher wage earners.
“The high tax increase on growth, capital gains has shortened up revenue in this commonwealth and other states around the nation,” Corman said on the Senate floor. The next morning, Gov. Corbett made the same point about federal tax policy changes during remarks at an event with the Harrisburg Regional Chamber & CREDC.
But Independent Fiscal Office Director Matthew Knittel says Pennsylvania didn’t lose revenue as much as it saw a shift. He said people wanted to avoid tax rate increases on capital gains and payments to shareholders – so many pulled their income into the 2012 tax year.
“Individuals cashing in their capital gains, trying to get that income in under the lower tax rate -- they’re pulling it forward, they’re cashing it in in 2012 instead of 2013,” Knittel said.
The result is a temporary drop in state tax collections for the 2013 tax year, and griping from lawmakers. But 2012 saw a big boost in state tax revenue because of that same shift – and lawmakers weren’t griping then.
The Rockefeller Institute, which studies public policy as part of the State University of New York, is calling the effect a “temporary ‘bubble’ in tax receipts,” and noted that many states saw strong growth in personal income collections in 2012 as taxpayers sought to avoid paying higher tax rates in 2013.
“It was a windfall for the state last year,” said Sharon Ward, director of the left-leaning Pennsylvania Budget and Policy Center. “A little more came in last year, a little less came in this year.”
“It was not as it has been billed: ‘big bad, Barack Obama and Congress caused this problem,’” Ward added.