Like most states, Pennsylvania is looking at a huge deficit as it prepares its budget for the new fiscal year. Most estimates put this number around $3 billion. That is not a small amount of money to make up and to date many proposed solutions are floating around.
The Senate Republicans have put forth a budget that includes no tax increases but does include a large decrease in spending. The House Democrats have proposed a tax increase to make up the shortfall. What appears to be a compromise that is gaining momentum and supported by Governor Ed Rendell is a temporary 10% increase to the personal income tax rate to 3.37% for three years. There is precedent for this type of one-time increase, as we did a very similar increase in 1983 and 1991.
By most estimates this maneuver would raise only about $1 billion a year. While that is a lot of money, it would not be enough to fix a budget with a $3 billion shortfall. Unless the economy is going to start growing in the near term and our unemployment number starts to shrink (i.e. we need an expanding tax base), I think we will need more drastic measures. I look for our politicians to settle on a combination of spending cuts, tax increases, and hopeful estimates for our economy to start growing in this upcoming fiscal year. If unemployment numbers stay high, I expect one year from now we will be having this same problem.
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