We Have a Priority Problem

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.

5 thoughts on “We Have a Priority Problem

  1. Thanks so much for this info. Twenty-eight states have eliminated their Delaware loophole to make taxation fair and every shale state but ours has an extraction (and not just an impact) tax. Our Governor is putting the superwealthy ahead of kids. We need him to knock it off.

  2. Think of the Capitol as a long tube, lined with Velcro. Now, blow $160 million from one end to theother and see howmuch reaches its destination, be that destination roads, or schools, or mass transit. This is why an extraction tax, fed into the machinery of general fund appropriations, would not have compensated those who should be first in line: the hosting communities.

    Truthfully, there are few, if any, adjustments to the tax code, save crushing tax increases, that would replace $5 billion. The only other option is to work to rebuild the private sector economy, which generates real prosperity, while holding down costs. Remember that call last year for teachers and administrators to agree to a one-year pay freeze?

  3. The above comment is from Dennis Roddy, former Post-Gazette columnist and now a paid member of Governor Corbett’s communication staff. I have confirmed this via email, and though Mr. Roddy says he is posting as a “father” and “taxpayer,” I believe his affiliation is highly relevant to this conversation so I am choosing to include it here.

    Maybe there is something wrong with a Harrisburg tube lined in Velcro. There are other ways to collect revenues. I personally am not willing to take Marcellus Shale off the table. If we are going to tap this natural resource at great cost to our collective health and environment, then we darn well ought to be taxing it and using that revenue to benefit Pennsylvania.

    I’m all for private sector jobs. But as Shippensburg University professors Brendan Finucane and Steven Burg pointed out earlier this month, “Recent state agency reports have documented that corporate profit levels are robust and corporate net profit margins are at historic highs.” Corporations are not always big, evil bad guys, but they need to pay their fair share: something the state has been asking them to do less and less. (See my piece on bonus depreciation, “We Have a Priority Problem.”)

    And you want to talk fair share? You ask about a “call last year for teachers and administrators to agree to a one-year pay freeze.” What about those teachers in Chester Upland who were working without pay at all this year? What about those teachers in Woodland Hills who are working two jobs just to make ends meet right now? (Read this incredible letter to the editor in the Forest Hills-Regent Square Patch: http://foresthills-regentsquare.patch.com/articles/letter-to-the-editor-teachers-working-to-make-ends-meet.) What about those teachers at my sons’ Pittsburgh Public School that volunteer to stay after school to run math clubs, swim teams, and mentoring programs? I refuse to lay the blame for our state budget crisis at the feet of our largely underpaid public school teachers.

  4. “Remember that call last year for teachers and administrators to agree to a one-year pay freeze?”

    Did the administration take a pay freeze? I don’ think so. The people who makes these laws, rules, decisions have NO IDEA what it is like in a classroom today! I love my job! It is not easy but I go there every day hoping that I reach my students and help make their lives better and more productive. Teachers are asked to always do more with less and the teachers I know do so, even taking money out of their pockets to get things for their classrooms and their students! I think if the corporations are going to take our natural resources then they should pay for the privilege.

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