No Tax Increases Proposed in Governor’s Budget

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Pennsylvania Governor Tom Wolf recently proposed a 2019 – 2020 state budget.  The good news, initially, is that the Governor did not include any call for increased state income and sales taxes and, in fact, contains proposals to reduce the corporate state income tax as a means of making the Commonwealth more competitive in drawing new businesses here.

The general provisions of the $34 billion budget include:

  • Public schools, who would see a substantial increase in state aid. Also included in this category are special education programs.
  • The State System of Higher Education would see a slight increase in funding though Penn State and other “state-related” universities’ funding would remain flat
  • Income tax and sales tax rates would stay flat with no planned increase.
  • The Pennsylvania State Police would see an increase in funding under the budget plan, but the Governor is calling on towns who rely only on the State Police to pay a fee to chip in on paying for the increased state funding.
  • Many health-related programs, including long-term living services, programs for citizens with disabilities, and substance abuse programs, would see some slight increase under the budget plan
  • The Governor has proposed a substantial increase in the state’s minimum wage, moving it to $12.00 on July 1, 2019 and up to $15.00 by 2025.
  • Environmental programs designed to protect the environment will be asked to rely on money that may not materialize
  • The budget protects the jobs of Pennsylvania governmental workers as there are no layoffs of any state workers in the governor’s budget.
  • The proposed budget provides a slight cut in funds for the General Assembly.
  • The state’s libraries will get flat funding under the plan, which is not good news for community libraries. Pennsylvania’s libraries get much less in state aid than they did in 2001.
  • The state’s museum commission would get a small boost in the Governor’s budget.

The proposed budget business provisions include:

  • Corporate net income tax reforms, focused primarily on a plan to require mandatory combined reporting designed to prevent shifts of income outside the Commonwealth to “non-tax” states, such as Delaware holding companies
  • Expansion of the resource enhancement and protection credit

The governor is calling to:

  • lower the corporate net income tax rate to 5.99% by 2024; and
  • adopt full combined reporting effective January 1, 2020.

In order to assist the agricultural industry, the governor proposed to expand the Resource Enhancement and Protection Credit by $3 million.

The budget represents a pragmatic approach to setting up negotiations with the Pennsylvania legislature and, obviously, is in the early stages of the process. However, the fact that the Governor has embraced enhancing Pennsylvania’s workforce and business environment has received positive responses from Republicans.  To be sure, the proposed budget will not be enacted in its current form.  It is expected, though, to set the foundation for meaningful discussions and timely passage. As always, we will follow the process closely and update readers as updates are made.

Should you have questions or comments, contact Bob Grossman or Don Johnston.