Governor Tom Wolf outlined his proposed budget priorities
for the 2015-16 fiscal year. His proposal represents a return to runaway
spending, and new and increased taxes on small businesses and working
families. Here is what you need to know:
Spending
The Governor’s budget proposal increases spending year by 16
percent, a $4.7 billion increase in spending over the $29.1 billion in state
spending this year. A few of the
highlights include:
·
Increased spending on basic education programs
by $1.3 billion.
·
Increased spending on subsidized child care of
$100 million.
·
An increase of $160 million for state-owned and
state-related universities.
·
Nearly a $700 million increase in Human Service
spending.
·
A $675 million borrowing initiative to fund
corporate welfare programs, including revolving loan funds, government
sponsored financing, and grants for alternative energy production.
Tax Increases
The Governor’s budget proposes cutting the Corporate Net
Income Tax in half over three years and eliminating the Capital Stock and
Franchise Tax. While these are positive
moves, the other tax changes contained in the budget are bad news for small
businesses and represent almost $5 billion in new and increased taxes. They include:
·
A 21 percent increase in the Personal Income Tax
rate from 3.07% to 3.70%.
·
A 10 percent increase in the Sales and Use Tax
rate to 6.60% and an expansion of the tax to include services such as legal
services, accounting and payroll services.
·
A roll-back of previously enacted Net Operating
Loss (NOL) carryforward increases – reducing the limit from $5 million or 30%
to $3 million or 12.5% of current year income.
·
One of the highest natural gas severance tax
proposals in the country, at a rate of 5% plus 4.7 cents per thousand cubic
feet.
·
New taxes on smokeless tobacco, cigars, loose
tobacco and e-cigarettes at 40% of the wholesale price and an additional $1.00
per pack tax on cigarettes.
·
An increase in the Bank Shares Tax from 0.89% to
1.25%.
Promises of
Property Tax Relief
In effort to sell the massive tax increase contained in his
budget, Governor Wolf has included a proposal to return $2.1 billion of the
almost $5 billion in tax increases for property tax relief. Here a few specifics that small-business
owners should know:
·
While the budget proposal includes almost $5 billion
in tax increases that would become effective this year, the proposed property
tax relief would not be made available until October 2016.
·
Property tax relief would be limited to
homesteads, meaning the majority of small businesses will see no relief.
·
The proposal offers a subsidy for property
taxes, but does nothing to control costs or limit the ability of school
districts to increase property taxes going forward.
Pensions
The Governor did not offer a plan for meaningful reform to
the state’s pension plans. He did
express a need to reduce the $1 billion in investment fees paid each year by
the two pension funds, which something many Republican lawmakers have discussed
as well. But outside of that, he
proposed simply doubling down by issuing a $3 billion Pension Obligation Bond
to “reduce payments” and earmark the increase in the Sales and Use Tax to cover
the difference going forward.
Liquor Reform
As expected, the Governor proposed “modernizing” the
state-run wine and spirits stores over privatizing liquor sales in
Pennsylvania. He proposed Sunday hours,
improving locations, and “competitive pricing.”
He estimates this would generate an additional $185 million, which is a
number that has been quoted before and many are skeptical of. An internal PLCB memo last fall noted that
overhead costs were running 2-percent ahead of revenue and would start to eat
into the $80 million transfer the agency directs to the state general fund
annually.
Minimum Wage
The Governor called for increasing the minimum wage to
$10.10 an hour.
