Many people are asking the fair question, “If we want to reverse these draconian cuts to public education (and transportation, health and human services, etc.) where are we going to find the funding, given that the state has a budget gap?” The fact is Pennsylvania has money on the table that it is choosing to spend on corporations, not people.
The state itself estimates that more than half of the current budget gap is due to a huge shortfall in corporate tax revenues (to the tune of $260 MILLION). Where did this money go? Pennsylvania’s Independent Fiscal Office recently concluded that the corporate tax shortage is “generally attributable” to a little-known corporate giveaway approved by the Revenue Department last year. Known as “bonus depreciation,” this new rule allows corporations to write off 100% of investment expenditures.
The Center on Budget and Policy Priorities had warned this would create a significant impact on state revenues. But, as Steven Burg and Brendan Finucane at Shippensburg University conclude in their recent op-ed piece, “Pennsylvania decided to provide this generous tax break and to implement it without legislative action.” That means that the people who work for us — our legislators — never even got a chance to vote on this corporate giveaway.
What’s more, at budget hearings last spring, the Department of Revenue “significantly underestimated the loss of revenue.” It had predicted shortfalls of “$69 million for 2010-11 and $132 million for 2011-12, as compared with the actual $260 million reduction for the first half of the current fiscal year.” You read that right: this corporate welfare program has allowed more than twice as many dollars to leave the table than the state thought it would, in the first half of this fiscal year alone.
Some claim that Pennsylvania needed to allow “bonus depreciation” in order to conform with federal tax policies. But there is no requirement that states do this – and most do not. All of our neighboring states are “nonconforming,” meaning they do not allow bonus depreciation.
As Professors Burg and Finucane point out, “This one tax change, realized without any vote in the state Legislature, has exacerbated the state budget situation. Economic conditions such as slow economic growth and high unemployment rates are contributing factors, but the decision to grant the ‘bonus depreciation’ was a voluntary decision made by the state.”
Indeed, when we are talking about cutting school librarians, science teachers, and mentoring programs, it’s time to start talking about state revenues. We don’t have a revenue problem, we have a priority problem.