Shapiro budget pitch cuts a few taxes with minimum wage, climate change effort adding revenue uncertainties - PennLive

Shapiro budget pitch cuts a few taxes with minimum wage, climate change effort adding revenue uncertainties - pennlive.com

The tax structure outlined in Gov. Josh Shapiro’s first budget proposal largely builds on the direction of his predecessor, Tom Wolf, but is notably more optimistic in some areas, such as increasing the minimum wage, while backing off some of Wolf’s big ideas on energy and income tax.

Overall, Shapiro expects the state to bring in $114.9 billion in the 2023-24 budget, including $42 billion in general fund revenues as well as the state’s many special and restricted-use funds. This income falls short of proposed expenditures by about $2.5 billion due to some tax cuts as well as the state picking up the tab for programs that the federal government is pulling back on.

This slight structural deficit is expected to continue in future years, according to longer-term projections included in the new budget proposal — although the administration said that its revenue projections are more conservative than those used by the state’s Independent Fiscal Office, meaning the the draw-down on the state’s reserves may be slower than the budget anticipates.

Minimum wage increase, but less impact: As opposed to prior years in which Wolf sought a phased-in wage hike, Shapiro’s 2023-24 budget assumes that the minimum wage will go all the way from the current federal minimum of $7.25 per hour to $15 per hour on Jan. 1, 2024.

Such an increase, in turn, raises the state’s income tax projections; personal income taxes are expected to rise from $17.7 billion in the current budget year to more than $18 billion in 2023-24 and $18.9 billion in 2024-25.

This is less of an impact than displayed in prior budgets, given that rapid wage growth in the current economy — particularly for workers on the lower end of the spectrum — means more workers are already earning well more than $15 per hour and would not see a direct impact.

This was cited Tuesday by Republicans as a reason they were less enthusiastic about negotiating with Shapiro on a minimum wage increase. Senate Majority Leader Joe Pittman, R-Indiana, said: “I just am not sure it’s a very relevant discussion” to the question of livable wages given the hot labor market.

RGGI money, if it passes legal muster: The governor’s budget proposal also assumes that Pennsylvania will receive $663 million from fees associated with the Regional Greenhouse Gas Initiative, a partnership of states who impose a cap-and-trade system for greenhouse gas emissions from power plants.

This money would go into the state’s clean air fund for use on environmental projects, if it actually comes to fruition. Republicans have argued that the carbon fees collected via RGGI constitute a tax and cannot be imposed by the state Department of Environmental Protection unilaterally; the matter is currently in court.

Senate Appropriations Chair Scott Martin, R-Lancaster, argued Tuesday that the inclusion of RGGI proceeds in the budget constitutes a new consumer tax, since the fees charged are likely to be passed “directly through to consumers of energy.”

Corporate tax cut on schedule: Shapiro’s budget includes an 8.49 percent corporate net income tax (CNIT) rate, in line with legislation that gradually reduces the state’s income tax rate. The current rate is 8.99 percent, and was at 9.99 percent prior to the current budget.

Shapiro has said he would work with the legislature to speed up the cut — but administration officials have also acknowledged that CNIT revenue is notoriously fickle and that it will take time to be certain of the impact.

Shapiro’s multi-year projections show CNIT revenue dropping from $7.6 billion in the current budget year to $6.6 billion in 2026-27.

No attempt at progressive income tax: Shapiro’s budget does not include what was arguably Wolf’s most novel proposal – raising the state’s relatively low personal income tax rate, but also expanding the associated tax credit for lower-income Pennsylvanians in order to create something close to a progressive income tax structure.

This was a work-around to Pennsylvania’s constitutional provision on uniform taxation, which has been interpreted as requiring flat tax rates and constrains the ability of the Commonwealth to raise taxes on the rich. But it appears Shapiro has abandoned this battle, for the time being.

Shapiro’s budget does include $2,500 per year income tax rebates targeted for certain professions ‚ teachers, nurses, and police officers — in order to provide incentives for new workers and help combat staffing shortages.

No fracking tax: Shapiro is not proposing to change the state’s per-well fee on shale gas drillers to a tax on the volume of gas extracted, a plan Wolf had proposed as a revenue-driver in prior budgets.

Much larger property tax and rent rebates: Shapiro is proposing to overhaul the state’s program which gives rebates on property taxes and rent paid by lower-income seniors and people with disabilities.

Because the program’s benchmark dollar values have not changed since its inception in 2006, eligibility for the program has declined amidst inflation. Currently, the program only applies to renters with less than $15,000 in income and homeowners with less than $35,000, with a maximum credit of $650.

In the 2023-24 budget, Shapiro would raise the income limit to $45,000 for both renters and owners, with those numbers indexed to inflation in future years, and hike the credit to $1,000. This would give more money to the 398,000 individuals who currently get the rebate, and make an additional 173,000 people eligible, according to the administration’s projections.

Cheaper cell phones: Under Shapiro’s 2023-24 budget plan, cell phones would become exempt from the state’s gross receipts tax and sales and use tax, which would save residents – and thus reduce tax revenue – around $124 million per year.