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What ACA Repeal Means in Pennsylvania

January 14, 2017 - 10:54am

** Sign our petition against repeal of the ACA **

We have seen politics in America take strange turns in the last few years, turns that often seem to reflect an almost total disregard of the basic facts of political and economic life. It is critical that we don’t allow this to happen in the debate about the Affordable Care Act. The consequences of repealing the ACA in Pennsylvania will be not only devastating, but deadly.

We at PBPC are working on a detailed report about the consequences of repealing the ACA in our state. It will be ready soon. But the preliminary information we have compiled is so horrifying that we don’t want to wait to give you the broad outlines of what we are finding:

  • ACA repeal will cause over 1 million Pennsylvanians to lose health insurance. Many of our fellow citizens will face dire health consequences for lack of health insurance as a result.
  • ACA repeal will be very costly for the hospitals—and especially the community hospitals—that will be required to provide health care to the newly uninsured. Some of those community hospitals will close as s result. 
  • ACA repeal will be very damaging to our economy. Over 100,000 Pennsylvanians will lose their jobs due to repeal. The state’s gross domestic product will drop by around $75 billion dollars.
  • ACA repeal will add a great deal to state and local budget difficulties. State and local tax revenues will drop over $2 billion. Between the loss of tax revenue and the additional required expenditures the state will have to make to replace ACA funding, the state’s budget deficit in the next five years, which already is approaching $2 billion a year, will grow by an additional $1.25 billion a year.

These are preliminary numbers. We will be refining them in the next few days. The final numbers are almost certain to be worse.

It is important to keep these facts in mind now that the United States House and Senate have taken the first steps towards repealing the Affordable Care Act by passing budget resolutions calling for legislation that would roll back many of the provisions of the law. This would not eliminate all provisions of the ACA, but it would end the Medicaid expansion and subsidies for individuals and families buying health insurance on the health insurance exchanges.

This is only the first step in a longer process, and there is no guarantee that the process will be complete. Indeed, if more of us recognize just how devastating the consequences of ACA repeal are for our ourselves, our friends and neighbors, our communities, and our state and then mobilize to stop repeal before there is a replacement that attains the same goals, we can stop it.

One thing you can do to help stop the repeal of the ACA is sign our petition against it. When you do so, we will forward your names to our legislators. And we will know to be sure to keep you informed about the ACA and how you can best take action to protect it.

The State and Local Government Workforce in Pennsylvania is the 2nd Smallest in the Country

January 11, 2017 - 12:26pm

As we begin to debate the 2017-18 state budget, the anti-government spin merchants will (yet again) paint a picture of a menacing, out-of-control public sector in Pennsylvania eating up taxpayers like a great Kraken.

But facts do matter. And the picture they will paint is the opposite of the true picture, shown above. 

When you add up all the workers employed both by the state of Pennsylvania and those workers employed by all of our local governments, including school districts and community colleges, and consider them relative to all employment in the Commonwealth, Pennsylvania has the second smallest public workforce in the country: for every 100 workers in the state only about 10 are state and local government employees. For typical states, 13-15 workers out of every 100 are state and local government employees. For all but three other states, at least 12 of every 100 workers are state and local government employees. This suggests one or both of two things. First, the public sector in Pennsylvania is more efficient than average. This is a good thing that we should all celebrate. Second, it raises the question: “is our state and local government too small?” (i.e., do our rural areas need colleges, or was laying off tens of thousands of workers in schools in 2011-13 such a great idea?)

Despite an efficient (and possibly anorexic) public sector, the state budget has a structural deficit now creeping towards $2 billion. A key driver of the structural budget deficit are past decisions by lawmakers of both parties to cut corporate taxes. For instance, the Capital Stock and Foreign Franchise Tax (at 2.89 mills, its level in 2011-12) would have raised almost a billion dollars for the 2016-17 state budget.[1] Instead, when policymakers take up the 2017-18 budget, their first task will be to close the budget deficit (which is now $367 milllion) that has emerged since the budget agreement was reached last July.

Some of you, like us, may be struggling to get your bearings at a strange time in national politics. Part of our response, as well as organizing to fight policies that harm most people, must be to double down on the facts. We can’t let people get away with just making stuff up. We’re here to help with that.

 



[1] The final phase out of the Capital Stock and Foreign Franchise Tax has cost the Pennsylvania treasury $2.7 billion since 2012-13.

OP-ED: Combine spending restraint with new revenue

January 5, 2017 - 10:05am

This piece originally appeared in the Erie Times-News, December 28, 2016.

Pennsylvania has been struggling with persistent budget deficits since the start of the Great Recession in 2008. And we at the Pennsylvania Budget and Policy Center have been recommending a "balanced approach" to resolving the deficit from the beginning, one that combines restraint in spending with new revenues.

But since 2010, under Govs. Tom Corbett and Tom Wolf, the General Assembly has adopted an unbalanced approach. Spending has gone down but revenues have gone down faster. From 1994 to 2011, under both Democratic and Republican governors, the state spent 4.7 percent of the state's gross domestic product. During the Corbett years that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.

Revenues have gone down partly because the state has been reducing corporate taxes for many years. They once accounted for over 30 percent of general fund revenues. Today they are at 17 percent. If corporate taxes brought in the 22.5 percent of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion.

And, in more recent years, the General Assembly has plugged holes in the budget with short-term fixes. This year they closed a $1.3 billion deficit with a combination of tobacco taxes - which decline over time - overestimates of revenues, and other one-time revenue sources. They borrowed money from other funds (which needs to be repaid). They shifted expenditures forward a year. They sold licenses to new outlets for gaming and liquor. And they instituted a tax amnesty that mostly benefits the wealthy and creates incentives to not pay taxes.

There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public-sector unions, can find millions more. But the deficit now approaches five percent of yearly spending. There is little fat to be cut. Drastic reductions in state spending would require the kinds of deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014. Erie is one among many cities in the state still suffering from those cuts.

So now, to balance our path to solving the state's fiscal crisis, it is time to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the "terrible 10" states, which tax those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets.

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But the "Fair Share Tax Plan" released by the Pennsylvania Budget and Policy Center shows us how to raise revenues from those whose incomes have gone up a great deal during that period.

Because the state Constitution contains a uniformity clause that makes it impossible to tax those with higher incomes at higher rates, this is difficult to do. But it is not impossible. Central to the plan is splitting Pennsylvania's personal income tax in order to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates - which we call "income from wealth" - to 4.5 percent. Over two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures - expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling, including an impact fee refund; corporate tax reform that would lower rates while taxing the 71 percent of mostly out of state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures - our proposal would generate $2.5 billion, going far to overcome the two-year deficit. And because income for families in the top 1 percent are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

The best, most balanced way forward for the Pennsylvania budget is to fix our tax system and make everyone pay their fair share.

OP-ED: Pennsylvania needs a fairer tax system

January 4, 2017 - 4:44pm

This piece originally appeared in the Pittsburgh Post-Gazette, December 26, 2016.

Pennsylvania faces another budget crisis. The combined deficit for this year and next is roughly $3 billion. It’s time all Pennsylvanians — and especially the members of our General Assembly — recognize that recurrent budget crises won’t stop until we fix our upside-down tax system.

Federal tax rates are higher for those with higher incomes than those with lower incomes. However, combined state and local taxes, because they rely on property taxes, sales taxes and income taxes that do not have steeply graduated rates, often tax those with low incomes at roughly the same percentage as those with high incomes.

Pennsylvania is worse than most states on this score. It is one of what the Institute on Tax and Economic Policy calls the “terrible 10” when it comes to tax fairness.

Pennsylvania taxes those with high incomes at a far lower rate than those with low incomes. State and local taxes take 12 percent of the income of families in the bottom 20 percent of the income scale, 10.3 percent of the income of the middle 20 percent of families, but only 4.2 percent of the income of the top 1 percent of families.

A tax system that treated rich and poor Pennsylvanians alike would bring in far more money, close the deficit and give us the resources we need to invest in education, human services, strong communities and clean air and water.

The uniformity clause of our state constitution prohibits any class of income from being taxed at more than one rate. So, rates that rise with income are prohibited. There are ways around the uniformity clause, but the General Assembly has never been willing to embrace them.

Instead, Pennsylvania has made matters worse by reducing taxes on corporations. Those taxes once accounted for more than 30 percent of general-fund revenue. Today they account for 17 percent. If corporate taxes brought in even the 22.5 percent of revenue they did in 2002-2003, overall revenues would increase by $2.3 billion. There would be no budget deficit in Pennsylvania, and legislators could debate which programs to invest in, not which programs to cut. 

Rather than fixing our broken tax system, our legislators have continually put off the day of reckoning. This year, they closed a $1.3 billion deficit with tobacco taxes, revenue overestimates and short-term fixes: borrowing money (from other funds, which needs to be repaid), shifting expenditures forward a year, selling licenses to new outlets for gaming and liquor, and instituting a tax amnesty that benefits mostly the wealthy and creates incentives not to pay taxes.

What’s more, while avoiding the real problem, legislators complain about spending — which as a percentage of the state GDP remains as low as it was in the Tom Corbett years. Or they try to change the subject to pensions, while never putting forward a pension proposal that actually would reduce the deficit, because such a plan does not exist.

No one wants to close deficits by increasing the tax obligations of working people and members of the middle class, whose incomes have stagnated for the past 20 years while the incomes of families high on the income scale have skyrocketed. 

There is a better way forward: the “Fair Share Tax Plan” released by the Pennsylvania Budget and Policy Center last week.

Central to our plan is splitting Pennsylvania’s personal income tax to tax different classes of income at different rates, which the uniformity clause allows. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes.) But we would raise the tax rate on dividends, capital gains, business profits, royalties and estates — which we call “income from wealth” — to 4.5 percent. More than two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures, our proposal would generate $2.5 billion, going far to overcome the two-year deficit. Those other measures include extending the sales tax to services that are mostly purchased by those with higher incomes while offering a sales-tax credit for those with lower incomes, a modest severance tax on natural gas drilling, corporate tax reform that would lower rates while taxing the 71 percent of the mostly-out-of-state corporations that now pay nothing, and raising the minimum wage, which would increase revenues while reducing expenditures. And because income for families in the top 1 percent are growing rapidly and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

Turning our tax system right-side-up not only would be fairer to all Pennsylvanians, it is the only path to raising the revenues needed to fix our budget problems and invest in communities across the state in the long term.

OP-ED: Time to fix our upside-down tax system

January 4, 2017 - 4:37pm

This piece originally appeared in the York Dispatch, December 23, 2016.

Pennsylvania has been struggling with persistent budget deficits since the start of the Great Recession in 2008. And we at the Pennsylvania Budget and Policy Center have been recommending a “balanced approach” to resolving the deficit from the beginning, one that combines restraint in spending with new revenues.

But since 2010, under Gov. Tom Corbett and Gov. Tom Wolf, the General Assembly has adopted an unbalanced approach. Spending has gone down but revenues have gone down faster. From 1994 to 2011, under both Democratic and Republican governors, the state spent 4.7 percent of the state’s GDP. During the Corbett years, that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.

Revenues have gone down partly because the state has been reducing corporate taxes for many years. They once accounted for over 30 percent of general fund revenues. Today they are at 17 percent. If corporate taxes brought in the 22.5 percent of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion.

And, in more recent years, the General Assembly has plugged holes in the budget with short-term fixes. This year they closed a $1.3 billion deficit with a combination of tobacco taxes — which decline over time — over-estimates of revenues, and other one-time revenue sources. They borrowed money from other funds (which needs to be repaid). They shifted expenditures forward a year. They sold licenses to new outlets for gaming and liquor. And they instituted a tax amnesty that mostly benefits the wealthy and creates incentives to not pay taxes.

There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public-sector unions, can find millions more. But the deficit now approaches five percent of yearly spending. There is little fat to be cut. Drastic reductions in state spending would require the kinds of deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014. York is one among many cities in the state still suffering from those cuts.

So now, to balance our path to solving the state’s fiscal crisis, it is time to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the “terrible ten” states that taxes those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets.

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But the “Fair Share Tax Plan” released by the Pennsylvania Budget and Policy Center shows us how to raise revenues from those whose incomes have gone up a great deal during that period.

Because our Constitution contains a uniformity clause that makes it impossible to tax those with higher incomes at higher rates, this is difficult to do. But it is not impossible. Central to the plan is splitting Pennsylvania’s personal income tax in order to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates — which we call “income from wealth”—to 4.5 percent. Over two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures — expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling, including an impact fee refund; corporate tax reform that would lower rates while taxing the 71 percent of mostly out of state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures — our proposal would generate $2.5 billion, going far to overcome the two-year deficit. And because income for families in the top 1 percent are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

The best, most balanced way forward for the Pennsylvania Budget is to fix our tax system and make everyone pay their fair share.

OP-ED: The rich can take the hit - to fix the budget, they should pay their fair share

January 4, 2017 - 4:32pm

This piece originally appeared on Pennlive, December 23, 2016.

You remember how Lucille Ball would work her way into some kind of predicament and then look around and wonder how she got there? That’s how our state legislators seem to look at the budget deficit we are stuck with right now. They are looking around wondering how the current Pennsylvania budget deficit, which approaches $3 billion for this year and next year together, happened. 

But it didn’t just happen. It was the product of a series of long-term and short-term decisions made by legislators, sometimes with the help of our governors.

Let’s start, however, with what did not cause the budget deficit, because too many of our legislators, like Lucy, want to blame someone else for the mess they have made. 

Growth in state spending is not the cause of budget deficits.

From 1994 to 2011, under both Democratic and Republican Governors, the state spent 4.7% of the its GDP. During the Corbett years, that fell to 4.3% as spending on education and human services were sharply cut. And while the state has been able to restore some of those cuts under Governor Wolf, overall spending remains at the same level as in the Corbett years.

To reiterate, we do not have a problem of government spending too much, as so many legislators would like you to believe. Can we find efficiencies? Sure. And we should. Are there ways to be smarter about how dollars are allocated across the state? Absolutely. And Governor Wolf has been more than willing to engage in that conversation with legislators. But the size of government is not driving our deficit problem.

Nor are pensions for state workers and teachers the problem. An effort to finally address the pension problem has led to rising costs in the last few years. But the future deficits projected by the Independent Fiscal Office will occur even though state pension costs are leveling off. And no one has put forward a Constitutional plan to actually reduce already-contracted pension costs in the short term.

So why do we face deficits year after year?

The root of the problem is that we have cut corporate taxes. They once accounted for over 30% of general fund revenues. Today they are at 17%. If corporate taxes brought in the 22.5% of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion for this year’s budget. That would have eliminated our budget deficit.

The more recent problem is that year after year, the General Assembly balances the general fund budget by overestimating revenues and adopting one-time fixes which only make the hole deeper.

The only solution to the budget crisis—besides another round of billion-dollar-plus cuts in both education and human services, which Pennsylvanians rejected in 2014—is to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the “terrible ten” states that taxes those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets. 

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But our “Fair Share Tax Plan” shows how Pennsylvania can raise revenues from those whose incomes have gone up a great deal.

Central to the plan is the splitting of Pennsylvania’s personal income tax to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates—which we call “income from wealth”—to 4.5%. Over two-thirds of the revenue raised by this tax would fall on the top 5%, while 82% would be paid by families with incomes above $95,000.

Combined with some other measures—expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling ; corporate tax reform that would lower rates while taxing the 71% of mostly-out-of-state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures—our proposal would generate $2.5 billion, going far to overcome the two year deficit. And because income for families in the top 1% are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

Lucy could always get out of her messes once she realized that she brought them on herself and had the power to fix them. We need our legislators to come to the same realization and fix our budget mess.

OP-ED: Is this the year Pa. resolves its perennial budget crisis?

January 4, 2017 - 4:29pm

This piece originally appeared in the Philadelphia Inquirer, December 28, 2016.

Many of us who write about budget politics have a keyboard shortcut to enter "Pennsylvanian Budget Crisis" into a document. Year after year, we write in December about the upcoming crisis and again in July (or sometimes far later) about how the crisis has been temporarily averted.

It is crisis time again. But perhaps this is the year we can change the script. There are new ways to do something that has eluded us in the past - solve the crisis on a long-term basis without imposing harsher new taxes on working people and the middle class.

Before coming to our long-term solution to the crisis, first a word about its dimension and cause.

The Independent Fiscal Office has projected that the deficit for the current fiscal year, ending June 30, will be $500 million while the deficit for the next fiscal year will be $1.7 billion. Those numbers do not include the cost of higher caseloads for medical assistance and long-term care than were projected last in July. Including those costs, and other likely shortfalls in revenue, the total deficit to be closed by June is roughly $3 billion.

Higher spending is not the cause of our budget crises. Measured by the share of the state GDP that flows through state government, general fund spending has been declining. From 1994 to 2011, under both Democratic and Republican governors, the spending averaged 4.7 percent of GDP. During the Corbett years that fell to 4.3 percent as spending on education and human services were sharply cut. And while the state has been able to restore some of those cuts under Gov. Wolf, overall spending remains at the same level as in the Corbett years.

So why do we face deficits year after year? There are long-term and short-term answers.

The long-term answer is that we have cut corporate taxes. They once accounted for more than 30 percent of general fund revenues. Today they are at 17 percent. If corporate taxes brought in just 22.5 percent of revenues, as they did in 2002-03, overall revenues would be higher by $2.3 billion. The deficit would be gone, with revenue to spare for us to invest in communities across the state.

The short-term answer is that, year after year, the General Assembly balances the general fund budget with short-term fixes: borrowing money from other funds (which needs to be repaid); shifting expenditures forward a year; selling licenses to new outlets for gaming and liquor; and instituting tax amnesties that mostly benefit the wealthy and create incentives to not pay taxes.

The General Assembly has been unwilling to raise taxes high enough to bring in enough revenue to solve the deficit problem now and in the future, while also making it possible to invest more in education, human services, and environmental protection, all of which are shortchanged in current budgets. Legislators on both sides of the aisle (rightly) don't want to increase personal income taxes that, given the flat income tax mandated by the uniformity clause of our constitution, fall heavily on working people and the middle class.

The Pennsylvania Budget and Policy Center has proposed a way around this. We suggest separating our personal income tax and taxing different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates - which we call "income from wealth" - to 4.5 percent. Over two-thirds of the revenue raised by this tax would fall on the top 5 percent while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures - expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling; corporate tax reform that would lower rates while taxing the 71 percent of mostly out of state corporations that pay no corporate income tax now; and raising the minimum wage, which would increase revenues while reducing expenditures - our proposal would generate $2.5 billion, going far to overcome the two-year deficit. And because income for families in the top 1 percent are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

Fixing our budget problems long term would enable those of us who write about state politics to eliminate the "Pennsylvania Budget Crisis" keyboard shortcut. Instead, we can write about a budget that invests in the future of Pennsylvania families and communities.

Two Approaches to the State Budget

January 3, 2017 - 8:58pm

It’s becoming more and more rare to see serious attempts on the part of newspapers (and their virtual counterparts) to compare policy proposals meant to deal with a serious public issue. That’s one reason I was so happy to see Tim Stuhldreher’s excellent piece, “Pennsylvania think tanks battle over remedies for $1.7 billion state budget deficit” in LancasterOnline.

The other reason I was happy is that the article demonstrates the difference between a serious proposal that actually tries to find a solution to the budget deficit—our Fair Share Tax Plan—and the Commonwealth Foundation’s right wing wish-list, which barely even gestures towards a solution. 

What, according to the piece, does the Commonwealth Foundation propose to close our state budget deficit? And what’s wrong with those ideas? They propose:

Putting new state employees in a 401(k) pensions—even though Republicans have failed time and again to find such a proposal that actually reduces state spending in the next fifteen years.

Expanding charter schools—even though, under our worst-in-the-nation charter school law, charters, especially in their provision of special education, tend not only to be more costly than public schools but also take funding away from those public schools.

End donation limits on the opportunity scholarship tax credit program—even though the program is a backdoor way to fund private schools and give tax breaks to corporations that actually reduces state revenues while not saving the state any money. 

Publishing labor contracts before they are finalized—even though this information is already available, there is no reason to think that greater publicity will change the contracts, and there is data shows that state employees are not remotely over-paid relative to the private sector. 

Increasing work requirements for welfare—even though welfare, as traditionally understood, was repealed in the 1990s, work requirements already exist in the TANF program that replaced it, and spending on that program is a small and declining share of the state budget. Of course, the Commonwealth Foundation is not really talking about “welfare,” but about federal programs such as food stamps that (1) don’t have any impact on the state budget; (2) can’t be changed by state action alone, and (3) create very little disincentive to work while providing essential support in helping those with low incomes escape from deep poverty.

You can find fault with our proposal, and we will continue to refinine it as we learn more. But you can’t deny that we actually have some ideas about how to close the deficit without massive cuts in spending on education and human services, and without broad-based tax increases.

But the Commonwealth Foundation proposal? There is a reason they don’t have estimates that show how their proposal reduces the budget deficit. It barely does so.

And unlike the Commonwealth Foundation proposal, we want to help people with low incomes, by raising the minimum wage among other things, rather than making them suffer while doing little to address the budget deficit. The Commonwealth Foundation, on the other hand, presents us with Ebenezer Scrooge’s Christmas wish list, updated for 2016. Their goal is to reduce the relatively little money we spend on helping people with low-incomes, no matter the pain it causes them. 

Broad and Narrow Taxes

December 23, 2016 - 4:55pm

Last week, just as we were putting out our paper on how to raise revenues without raising taxes on working people and the middle class, Governor Wolf announced that he would not call for raising broad-based taxes, particularly the personal income tax and sales tax, in the budget proposal he puts forward in February. And, of course, the Governor's statement echoes what the Republican leaders of the General Assembly have been saying as well. 

A friend asked me if I were disappointed by these announcements. I quickly responded, “not at all.”  Most of our tax plan is precisely designed NOT to require increases in broad based taxes.

Indeed, the core of our proposal—a new tax on income from wealth—targets families in the top 5%, and even more the top 1%, of incomes. Sixty-seven percent of new revenues would come from top 5%. Middle- and low- income families would pay very little because very little of their income comes from wealth—that is, dividends, profits, capital gains, royalties, and estates. 

We do call for an expansion of the sale tax base to some goods and services mostly bought by those with higher incomes, combined with a sales tax rebate for those with low income. And our proposal includes a small increase in the tax on wages and interest, but that is offset by a increase in tax forgiveness for those with low incomes. But that is a minor component of our larger proposal. Raising the tax on income from wealth to 6.5%, which would still leave it below similar rates in other states, would raise $2.5 billion per year, going far to close the deficit next year and leaving us a little extra to invest in schools and human services, and combined with our other tax proposals, enough to also cut broad-based taxes a bit.

So, my response is, when it comes to being against a broad-based tax increase, we are on the same page as Governor Wolf and the House and Senate Republicans as well. 

The Budget Our Democracy Deserves

December 23, 2016 - 4:24pm

Many of the ideas in this post are components of PBPC's recently-released "Fair Share Tax Proposal for Pennsylvania."

The recent political talk about Pennsylvania is focused on the latest in a series of fiscal crises. But lurking in the background is a larger crisis—a crisis of democracy in Pennsylvania. 

The deficit approaches $3 billion for this year and next year combined. Yet the solutions that one would think were most obvious in a putative democracy are not the ones the leaders of our General Assembly seem inclined to support. 

We are never going to solve our budget crises in Pennsylvania if we don’t fix our upside-down tax system. Pennsylvania is one of what the Institute on Tax and Economic Policy calls the “terrible ten” states when it comes to tax fairness. We tax those with high incomes at a far lower proportion than those with low incomes. State and local taxes take 12% of the income of the bottom 20% of families, 10.3% of the income of the middle 20% of families, but only 4.2% of the income of the top 1% of families. 

Over the last twenty years, incomes have been largely stagnant for those at the bottom and middle of the income scale. But the very rich have seen their incomes grow by leaps and bounds. We can’t generate more revenue in Pennsylvania to pay for schools and colleges and roads and bridges and clean air and water we all need when the very rich don’t pay their fair share of taxes. 

So, why, in a democracy, do we have a tax system that year after year punishes low- and middle-income families while rewarding those with high incomes?

We could take an important step toward fixing our budget problems if we instituted a severance tax on natural gas drilling. A modest tax would raise over $200 million now. And when gas prices recover, it could generate up to a billion dollars a year. Every other state that has substantial natural gas fracking operations has a severance tax. Polls show that over two-thirds of Pennsylvanians support such a tax.

So why, in democracy, do our legislators again and again fail to vote for such a severance tax?

Another important step we could take in dealing with our fiscal crisis is to reform our corporate income tax. We could raise $200 million in additional revenues while lowering the corporate tax rate by closing the “Delaware loophole.” Because of that provision, 71% percent of corporations, mostly large, rich, multi-national ones, avoid paying taxes to Pennsylvania. Moreover, it is the decline in corporate taxes that largely accounts for our deficits. Those taxes once accounted for over 30% of general fund revenues. Today they are at 17%. If corporate taxes brought in the 22.5% of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion for this year’s budget. That would have eliminated our budget deficit and provided revenues for investments in K-12 and higher education, infrastructure, and clean air and water. 

Very few Pennsylvanians hold much corporate stock. And our current tax puts smaller, in-state corporations at a disadvantage against large, multi-state corporations. 

Why, in a democracy, would our legislators again and again fail to vote for corporate tax reform.

A full answer to these questions would take a much longer piece. But the main barriers to democracy—and a budget that serves all of us—are clear. 

One problem is that some of our legislators are more responsive to big campaign donors than to their constituents. That the natural gas fracking industry is a huge contributor to state legislators has much to do with our failure to tax them.

Another problem is that so many legislative district lines, especially in the House, have been drawn to create overwhelming partisan majorities. In those districts, legislators are far more concerned about losing a primary election to extremists in their own party than losing a general election to the opposing party. In Republican districts, that has encouraged legislators to care more about the views of right-wing ideologues who defend our upside-down tax system than the majority of their constituents who need the high-performing schools, access to college, safe roads and bridges, and protection of clean air and water that the state cannot fund at adequate levels now. 

When party leaders elected by a majority of their party, but a minority of the whole House or Senate have absolute control over the legislation that comes to the floor, they can block legislation that a majority of legislators and Pennsylvania voters want. I have no doubt that, even with Republican majorities in the House and Senate, more than 50% of legislators in both houses would vote for corporate tax reform and for a severance tax if they had the chance.

A final barrier to democracy in our state is the uniformity clause of the Pennsylvania Constitution, which prohibits graduated tax rates. Under our Constitution, the General Assembly cannot tax families with high incomes at higher rates than those with low incomes. 

There is, however, a way to fix our upside-down tax system despite the uniformity clause. The Pennsylvania Budget and Policy Center has proposed splitting Pennsylvania’s personal income tax in order to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates—which we call “income from wealth”—to 4.5%. Over two-thirds of the revenue raised by this tax would fall on the top 5%, while 82% would be paid by families with incomes above $95,000. 

Our proposal has been introduced in the General Assembly by Senators Art Haywood, Vincent Hughes, and Jay Costa. A state government that accurately reflected the interests of the vast majority of Pennsylvanians would embrace this proposal. But in our current state of affairs, it is difficult to enact. 

Difficult but not impossible. There are barriers to democracy, but if citizens from around the state rally together and demand action to fix our budget crisis without drastic cuts to education and human services, we can overcome them. 

Many advocacy groups, human service agencies, educators and labor unions have joined together in the Pennsylvania’s Choice campaign to help fix our broke tax system. You can help make that happen by signing up in support of Pennsylvania’s Choice today

The ideas in this post are components of PBPC's recently-released "Fair Share Tax Proposal for Pennsylvania" that are outlined below:

New Report: A Fair Share Tax Plan for Pennsylvania

December 21, 2016 - 5:35pm

In the wake of Budget Secretary Randy Albright’s mid-year budget briefing and the news that the Pennsylvania budget for 2016-17 will have a deficit of $600 million, the Pennsylvania Budget and Policy Center today released a new, comprehensive revenue proposal to address the looming deficit for FY 2017-18, which when combined with the deficit for this fiscal year, could approach $3 billion.

The new report, "A Fair Share Tax Proposal for Pennsylvania: How to Raise Revenues While Sparing Most Pennsylvanians," can be read in full here

While the current year deficit is a problem for the state, unfortunately it is not the biggest budget problem we face. The Independent Fiscal Office is projecting a 2017-18 deficit of $1.7 billion, which does not include the ongoing costs of higher human service caseloads which might add $300 million or more to the total.   

One barrier to raising revenues is the reluctance of legislators on both sides of the aisle to place additional taxes on Pennsylvania’s poor and middle-class. That reluctance is well motivated. Over the last 25 years, incomes for the richest Pennsylvanians have been rising fast, while incomes for all other Pennsylvanians have been stagnant. Despite that, Pennsylvania’s tax system is profoundly unfair, as it taxes those with the lowest incomes at a rate triple those with the highest incomes.  

The new report proposes a series of revenue increases that, taken together, would close the structural deficit and provide the funding necessary to meet the needs of the state, while sparing low- and middle-income people from most of the additional tax burden. 

The report proposes that the state:

  • Bifurcate the personal income tax into two parts and establish a higher tax rate on income from wealth (dividends; net income from a business, profession, or farm; capital gains; net income from rents, royalties, patents, and copyrights; gambling and lottery winnings; and income from estates or trusts). Raising the tax on income from wealth from the current 3.07% to 4.0% would bring in an estimated $788 million in new revenue. At a rate of 4.5%, the tax would bring in $1.2 billion. Over two-thirds of the new revenue would come from families in the top 5% of income; 82% would come from families with incomes of $101,000 or more. 

  • Raise the tax rate on wage and interest income from the current 3.07% to 3.25%, while expanding the tax forgiveness program to reduce taxes on those with the lowest incomes. This would raise revenues by a net of $375 million.

  • Expand the sales tax base to include goods and services that are more likely to be purchased by those with high, rather than low, incomes. Combined with a credit to low-income families for the sales tax they pay, this would net $338 million in new revenue.

  • Eliminate corporate tax loopholes by instituting combined reporting of corporate taxes (closing the “Delaware Loophole”), while lowering the tax rate. This would net $200 million in new revenue. 

  • Institute a modest severance tax of 6.5% on natural gas drilling. This would raise $218 million.

  • Raise the minimum wage to at least $10.10 per hour, which would increase income and sales tax revenues while reducing state expenditures for Medical Assistance. The net contribution to deficit reduction would be $225 million.

WATCH THE WEBINAR OF THE REPORT RELEASE

Unequal Pennsylvania

December 16, 2016 - 10:24am

For those of us that follow inequality statistics, this December has been a blockbuster month.  Most recently the Center on Budget and Policy Priorities (CBPP), in a prelude to a full reboot of its seminal report "Pulling Apart" (jointly produced with the Economic Policy Institute), released data (see the PA Fact Sheet) on family incomes in Pennsylvania by income fifth for 2015. In slightly less wonky language, CBPP sorted family incomes from lowest to highest and compared the distance between the highest and lowest earning families. According to CBPP, on average the top 5% of families in Pennsylvania earned $313,265 in 2015, a figure slightly less than 14 times the $22,638 earned on average by the bottom 20 percent of families. Ranked against the rest of the country (highest to lowest) the distance between the top 5% of families and the bottom 20% of families in Pennsylvania is in the middle of states (23rd). The distance between family incomes matters because income shapes our access to transportation, voting, quality of education for our children, health care, paid sick days, paid family leave and so on; and the more spread out incomes are the more you get communities of concentrated poverty and wealth.

Along with the CBPP release we published new data on the average incomes of the highest earners in Pennsylvania in 2014 based on tax returns filed with the Pennsylvania Department of Revenue. This data complements the CBPP release by going beyond what is possible in Census data and tracking more closely trends in the very highest incomes. We find that the average income of the top 1% of Pennsylvania taxpayers rose 9% from 2013 to 2014. With an average income in 2014 of $1,175,600, incomes for the highest earners are up 19% (an increase of $189,800) from their 2009 levels. The upper middle class in Pennsylvania, taxpayers with incomes higher than the 90th percentile of $123,849 but less than the 99th percentile of $445,841, saw their incomes rise in 2014 by 3%, bringing their income gains since 2009 to 8%.  We will be back in 2017 to examine trends of the incomes of the rest of us (the bottom 90%) in this period (if you haven’t seen it here is our review of trend in top incomes from 1917 to 2013).

ZERO ECONOMIC GROWTH FOR BOTTOM HALF OF INCOME EARNERS

The first two weeks in December also saw the release of groundbreaking and frankly breathtaking research from income inequality researchers.  The first eyepopping paper from Thomas Piketty, Emmanuel Saez, and Gabriel Zucman does something entirely novel. To understand that, consider the top incomes figures for Pennsylvania I just summarized above. Our data summarizes taxable incomes and thus misses things like the income from pensions and health care which have become a larger (although still relatively small) part of compensation over time. This new data from Piketty and company measures ALL income both pre- and post-tax and assess how much goes to the bottom 50% compared to the top 1%.  It’s a stunning piece of work. Here is one of many insights from the paper:

“Perhaps the most striking development in the U.S. economy over the last decades is the stagnation of income in the bottom 50%...Figure 3 shows how the pre-tax and post-tax income shares of the bottom 50% have evolved since 1962. The pre-tax share increased in the 1960s as the wage distribution became more equal - the real federal minimum wage rose significantly in the 1960s and reached its historical maximum in 1969. The pre-tax share then declined from about 21% in the 1969 down to 12.5% in 2014. The post-tax share initially increased more then the pre-tax share following President Johnson's \war on poverty"-the Food Stamp Act was passed in 1965; aid to families with dependent children increased in the second half of the 1960s, Medicaid was created in 1965. It then fell along with the pre-tax income share. The gap between the pre-and post-tax share of income earned by the bottom 50% increased over time. This is not due to the growth of Social Security benefits because pre-tax income includes pension benefits but owes to the rise of transfers other than Social Security, chiefly Medicaid and Medicare. ..almost all of the meager growth in real bottom 50% post-tax income since the 1970s comes from Medicare and Medicaid. Excluding those two transfers, average bottom 50% post-tax income would have stagnated around $20,000 since the late 1970s. The bottom half of the adult population has thus been shut off from economic growth for over 40 years, and the paltry increase in their disposable income has been absorbed by increased health spending.

Our colleague, Colin Gordon, from the Iowa Policy Project has a very easy to follow summary of what’s in the new data; you should check it out.

BARRIERS TO UPWARD MOBILITY

Finally Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, and Jimmy Narang tackle a different dimension of inequality, absolute income mobility. Or as they have constructed it, what fraction of people at age 30 earn more than their parents did at that same age.  For children born in 1940, 90% had incomes at 30 that were higher than their parents at that age. That fraction has fallen steadily over time such that for children born in 1980 only half had incomes by age 30 that were greater than their parents at that age. As Jared Bernstein explains, the researchers conclude that the growth in the distance between family incomes plays the more important role in explaining this unsettling trend than slow economic growth.

POTENTIAL SOLUTIONS

It's clear that opportunity and shared prosperity are not what they once were in Pennsylvania and in America. It is possible to push back on these trends, for instance, by raising the minimum wage and funding increased education spending with a higher tax on high income households. KRC’s “Agenda to Raise Pennsylvania’s Pay” includes a host of other ways Pennsylvania lawmakers could reduce the inequality of incomes before taxes and transfers (the “pre-distribution”).

The CBPP report and recent reports of the Pennsylvania Budget and Policy Center (PBPC) also offer recommendations for how state tax policies reduce inequality. Currently, Pennsylvania’s tax system takes a larger bite out of the incomes of working people and the middle class than from top earners. Policies that would raise revenue to make critical investments in education while making the tax code fairer include:

  • Raising tax rates on non-wage income (“income from wealth”) which goes mostly to high earners, a change that is permitted by Pennsylvania’s constitution even though it does not permit graduated income taxes.
  • Closing costly and ineff­ective corporate tax loopholes that allow many large corporations in Pennsylvania to pay little or nothing in taxes.
  • Broadening the sales tax base to include more services consumed by wealthy individuals — such as investment counseling or country club memberships.
  • Enacting a state earned income tax credit or expanding the state’s income tax forgiveness program, which boost incomes among low-and moderate-wage working families.

We have the tools for creating more broadly shared prosperity; our task is to build a consensus in support of change.

 

On The Mid-Year Budget Briefing: The Full Picture Is Even More Grim

December 15, 2016 - 4:46pm

Budget Secretary Randy Albright’s mid-year budget briefing this week brings worrisome news that, at its current level of expenditure and revenues, the Pennsylvania budget for the 2016-17 will have a deficit of $600 million. Part of that deficit is the result of lower tax revenues than were projected when the budget was enacted in July. Another part is higher human service caseloads, which will require a supplemental appropriation. The projected deficit might increase again if the General Assembly does not enact legislation to bring in $100 million in internet gaming revenues and if a second Philadelphia casino license is not sold for $50 million.

While the current year deficit is a problem for the state, unfortunately it is not the biggest budget problem we face. The Independent Fiscal Office is projecting a 2017-18 deficit of $1.7 billion, which does not include the ongoing costs of higher human service caseloads which might add $300 million or more to the total. 

All told, between the current year and next year, the General Assembly may need to close a budget gap that approaches $3 billion by June 30. And, as mandated costs grow faster than revenues, budget deficits in future years will approach that number as well. 

The recurring budget problems are not the result of higher spending. As a percentage of the state’s Gross Domestic Product (GDP), state spending fell from an average of 4.71% in the years between 1994 to 2011 to 4.33% during the Corbett Administration. It has stayed at that level in the first two years the Wolf Administration. On the other hand, largely due to reduction in corporate taxes, revenues have fallen faster from 4.89% of GDP between 1994 to 2011 to 4.49% during the Corbett Administration to 4.44% during the Wolf Administration.

The long term budget problem, then, is not something that just happened. It was created by reductions in corporate taxes that were not made up by other revenues. And it has been made worse by the willingness of the General Assembly to plug holes in the budget this year and in previous years by relying on one-time revenues from the sale of licenses, from borrowing from special funds (which must be paid back), and from shifting costs from current to future years. 

Despite these budget problems, Governor Wolf and the General Assembly have managed to invest more in education and some human services, such as opioid addiction, while maintaining the state’s commitment to critically important spending for medical assistance and long-term care and to funding pensions. But investments in education and human services have not, in all cases, restored the cuts during the Corbett era. Nor have they provided the new investments we need in education and human services to generate more economic growth and shared prosperity.

The Governor and leaders of the General Assembly are, rightfully, focused now on finding ways to restructure or reinvent government to save money. And the Governor’s GO-TIME office has already found substantial savings through initiatives of this kind. While necessary and admirable, no one should imagine, however, that innovations in government and finding new efficiencies can close the large budget deficits we see before us.

No one wants to raise taxes on working people and the middle class to close the budget deficit. So, ultimately, the General Assembly is going to have to fix Pennsylvania’s upside-down tax system, which taxes those with lower and middle incomes at much higher rates than those with higher incomes, in order to provide the revenues the state requires to meet the needs of all Pennsylvanians.

Reflections on the Election and the White Working Class...and Some Links Worth Reading

November 19, 2016 - 10:04am

Like many of you, I've spent the last 10 days reflecting on the Presidential election and devouring countless commentaries. The end of this blog includes some links I found helpful.

In any presidential election this close, changes in a large number of factors "coulda, woulda, shoulda" changed the outcome. That said, the margin by which Trump won the the white non-college vote—64% to 32% in Pennsylvania, not far off the 67 percent to 28 percent national gap—seems too big to ignore. 

It's not as if this is a new challenge. Back in 2000, we wrote in Pennsylvania's Forgotten Majority about the volatity of voters in the state without a four-year college degree. In these earlier years we didn't have exit polls split by race as well as education level, so we used the total non-college vote to gauge shifts among whites. As a point of comparison, Trump won the total Pennsylvania non-college vote by 52%-45%.

President Clinton carried Pennsylvania by winning non-college voters 48%-33% over George H.W. Bush in 1992 and 51%-38% over Bob Dole in 1996. A more than 20-percentage point swing among non-college Pennsylvania votes compared to 1992 carried Republican Rick Santorum to victory over Democrat Harris Wofford in the 1994 Senate race. Swings among non-college voters also contributed to a large increase in the Republican majority in the Pennsylvania Senate in 1994 and to swings towards Republicans State House races—swings which have never been fully reversed.

The volatilty and anger of white working class voters is not that mystifying to anyone who spends as much time looking and wage and income statistics as we do. This year's The State of Working Pennsylvania 2016 shows the large wage declines among white non-college men going back to 1979. (The wage decline among black non-college men has been even larger.)

KRC's analyses of intersecting economic and political trends focus too exclusively on economic trends. The sense of grievance felt by many voters can’t be reduced simply to wage declines and lower employment rates. Economic struggle has been accompanied by a loss of place in the community and a sense of being disrespected. Trump mixed accessible ideas about how to improve the economy (with new trade policies and investment in infrastructure) with a validation of the sense of grievance within his white working-class base. The criticism heaped on Trump for "behaving badly" almost played into his hands by reinforcing the identification with him of voters who feel disrespected. Going forward in Pennsylvania, policy prescriptions and political messaging need to respond to white working-class voters' need for respect and a redefined sense of place (which, contra Trump, doesn't require diminishing or attacking other groups).

Reflecting further on the election, we at KRC (and perhaps other progressives) need to get out more. We get out some—talking to local unions and central labor councils, and even to the occasional “Tea Party” chapter (which was great fun by the way—thanks Berks County Patriots). Giving talks to working people plus our immersion in grim economic trends make us less insulated than some in Harrisburg. But we need to spend more time listening to people talk about their economic struggles and frustrations—including people who disagree with us—and asking them which answers they find most compelling.

We have some initial ideas on how to get out more, and how to serve more effectively as Pennsylvania’s think tank for an economy—and a politics—that works for all. But let us know your ideas…and what you’re reading (email herzenberg@keystoneresearch.org or call 717-805-2318).

Now, finally, here are a couple of links:

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On The Inaction by State Senate to Fund Unemployment Compensation Call Centers

November 18, 2016 - 4:42pm

Pennsylvania Budget and Policy Center Director Marc Stier made the following statement after the state Senate failed to vote for additional funding for the Department of Labor and Industry’s unemployment compensation call centers during its only scheduled post-election session day:

"If you have received unemployment insurance or know anyone who has, you know how important it is for people to receive help in navigating a complicated system, particularly at a difficult time in their lives. Too often, the phone lines to the call centers where help can be found are busy. And that often means that recently-unemployed people cannot secure the help they need in claiming the benefits to which they are entitled, and which have been paid for in part by their own taxes.

"This has long been a serious problem in Pennsylvania. Recent additions to funding from the federal and state governments have helped reduce it. But yesterday, the Pennsylvania Senate left town without action on HB 2375, which would have continued that funding. 

"HB2375, which received bi-partisan support in the House, provided $57.5 million to improve UC services, replacing funding previously provided by Act 34, which has expired. Act 34 funding helped reduce call wait times by more than an hour in the last two years. 

"Those improvements—and further ones—may now be lost. And what’s worse, 600 employees of the Department of Labor and Industry will be laid off before the holidays. 

"Here’s hoping that they will be able to get their unemployment insurance in a timely fashion."

 

IFO Report: Deficits Now and In The Future

November 15, 2016 - 10:00pm

Pennsylvania Budget and Policy Center Director Marc Stier made the following statement following the Independent Fiscal Office release of their Five Year Economic and Budget Outlook:

"The herculean efforts of the Governor and General Assembly to overcome their divisions and reach a budget agreement last year may have enabled legislators to leave town in July. But it left the state with a deficit of at least $524 million for the current year, a projected deficit of at least $1.7 billion for the year beginning July 2017, and budget deficits that grow year after year beyond that. 

"If the state continues to generate revenue under current laws and maintains the current level of services, the projected deficit reaches $3 billion in 2021-22 and continues to grow by $175 million per year thereafter. 

"That conclusion, which is contained in the new Five year Economic and Budget Outlook released today by the Independent Fiscal Office (IFO), will not surprise anyone who has closely followed Pennsylvania Budget politics or who has paid attention to our warnings about the short fall in revenues this year or about the revenue package adopted in July. 

"The $524 shortfall in the current fiscal year is mainly a result of the General Assembly overestimating revenues in three ways: 

1. The General Assembly relied on optimistic projections that were higher than those put forth by IFO in June. 

2. The slow-down in the economy that reduced revenues in the first few months of the fiscal year is not expected to be offset by faster growth in the remaining of the year.

3. The General Assembly expected to raise $150 million by enacting an internet gaming bill and selling a second casino license in Philadelphia. It appears that neither will happen.

"The shortfall for this year could be exacerbated if the General Assembly enacts a supplement appropriation bill to fill a $366 million gap in human service funding that has arisen mostly as a result of higher case loads than projected for long term care and medical assistance. While some of that gap may be filled by cost savings or additional federal funding, a supplemental appropriation of between $150 and $300 million may be necessary. 

"As bad as the short term problem is, the long term problem is even worse. At the beginning of this year, Governor Wolf rightly warned that the long term situation was dire and called for new recurring revenues. And, as we’ve pointed out before, the long term deficit is the result not of higher spending but of ill-advised cuts to corporate taxes. These cuts in corporate taxes reduced state revenues below that necessary to pay for what the state government does now, let alone to restore the Corbett cuts to K-12 education, higher education and human services. 

"But the Republican-led General Assembly was unwilling to raise general taxes—the personal income tax, sales tax, or corporate tax. Instead, about half of the revenues it raised for this year came from recurring taxes, mostly on tobacco. (The amount raised from the tobacco taxes is projected to decline over time, however.) The other half came from one-time revenues that either do not help in future years or, because they involve transfers from other state funds that have to be paid back, actually increase the budget deficit in future years.

"The result of ignoring the warnings of the Governor, of us, and of many editorial boards, is that the long term Pennsylvania budget situation remains as threatening as it was last year at this time.

"The only solution is new revenues. The Pennsylvanian Budget and Policy Center will soon be releasing a paper that shows how the state can raise the revenues necessary to close the long term deficit and fund vital programs like those for our kids without raising taxes substantially on working people and the middle class." 

In Election's Wake: Time to Judge Elected Officials on Whether They Deliver an Economy Less Rigged to Benefit Political Insiders

November 9, 2016 - 12:08pm

What should Pennsylvanians and Americans take away from the Presidential election? While fully digesting Trump's razor-thin victory will take time, national exit polls show that the President-elect won several groups by large margins: white non-college and rural voters, those who view the economy as fair or poor, and those whose family financial situation has worsened.

Our annual State of Working Pennsylvania suggested that these and other middle-class groups have a right to feel aggrieved by an economic and political system rigged to benefit the rich and powerful.

The new President and other elected officials should be judged going forward by a simple standard: will the policies they propose further rig the economy to benefit the rich and powerful? Or will they fight to give regular Pennsylvanians and Americans a fair shake again?

Will, for example, President-elect Trump deliver on a trade policy to benefit the middle class? Will Pennsylvania’s legislative leaders finally allow a vote on a substantial increase in the minimum wage—a simple, overwhelmingly popular way to make the economy fairer for regular people? (Voters in four states approved minimum wage increases to at least $12 per hour yesterday.) Will Pennsylvania lawmakers enact “An Agenda to Raise Pennsylvania’s Pay? That’s what it will take to improve the economic circumstances of white non-college and rural voters—and other middle-class groups—and make the economy “good” or “excellent” for those who currently view it as “poor” or “fair.”

In the aftermath of the election, it’s time to respond to populist anger and frustration with more full-throated populist solutions. And it’s time to call out politicians at the national and state level more bluntly when they rig the economy further to benefit the 1 percent.

Advice for the Voting Booth: Consider Who Will Support the Agenda to Raise Pennsylvania's Pay?

November 7, 2016 - 10:36am

The day before the election, Pennsylvanians who go to the polls tomorrow have one last chance to consider the choices they will make.

Since Keystone Research Center is an economic think thank focused on the middle class, our efforts to inform voters have highlighted two issues: how the middle class is doing; and the policies that would benefit the middle class going forward.

In The State of Working Pennsylvania 2016, we highlighted that, most of the middle class has not done well over the past 15 to 35 years (even though the last year and the last month have been good ones). Long term, however, when you cut the electorate by race/ethnicity, gender, or education (college or not), every large group has seen its wages stagnate or decline.

We (and many others) think that long-term economic difficulties underly some of the anger that surfaced in this election.

When it comes to policy, we've urged Pennsylvanians to channel their anger towards electing candidates who will enact policies that would "raise Pennsylvania's pay." Don't cut off your nose to spite your face by supporting candidates who will double down on a policy agenda for the 1 percent.

The end of The State of Working Pennsylvania 2016 details an "Agenda to Raise Pennsylvania's Pay" and contrasts it with "The Agenda to Lower Pennsylvania's Pay." The contrast is a pretty stark one. One group of Pennsylvania candidates and office holders wants to raise the minimum wage, give workers more bargaining power with employers, and boost investement in education and infrastructure that will create more middle-class jobs for every major demographic group. Another group of candidates and office holders are on record as championing the policies favored by Pennsylvania's self-described "free market think tank," the Commonwealth Foundation. Those candidates don't want to raise the minimum wage (or want to raise it as little as possible), do want to weaken the power of working families in bargaining with employers and in politics, and don't want to raise revenues to invest in schools or in infrastructure.

If you're a hard working Pennsylvanian who hasn't seen a significant raise in...forever, we think the choice is simple. You should vote for candidates who will support The Agenda to Raise Pennsylvania's Pay.

SWPA 2016: College No Longer Guarantees Rising Wages—Degree Holders Need Agenda to Raise PA’s Pay Too

October 28, 2016 - 8:13am

The post below is one of a series of posts about specific trends examined in the recently-released annual edition of The State of Working Pennsylvania.

We’ve already laid out how Pennsylvania men without a college degree have not shared in Pennsylvania's economic gains over the past few decades and how women without a college degree are still playing catch up. What about Pennsylvanians with a college degree, though?

For years, having a bachelor’s degree was the key to unlocking jobs with rising wages. Up until 2000, male college graduates in Pennsylvania fared better than those without a four-year college degree when it came to increasing wages. Hourly earnings climbed for white and black men with at least a bachelor’s degree by 23 percent and 14 percent respectively between 1979-81 and 2000-02.

Since 2000-02, though, the hourly earnings of white men with at least a bachelor’s degree have fallen $1.50 per hour or $3,200 for a full-time worker. Black workers with a bachelor’s or higher have seen their hourly earnings fall $2.18 or $4,500 for a full-time worker.

Beyond that, the data shows that a college degree does not protect minority men against racial gaps in earnings: in the most recent three-year period, black and Hispanic men with a college degree made 78 and 81 cents for every dollar a white man made with the same level of education.

For women with at least a bachelor’s degree, the story is one of long-term improvement, but a significant pay gap remains.

Real hourly earnings for white and black women with a college degree or better climbed 41 percent and 39 percent respectively between 1979-81 and 2000-02.

Since 2000-02, however, the wages of white women with at least a bachelor’s degree have fallen by 1 percent.  And, most alarming, the data shows that female black college graduates have fared substantially worse, absorbing a 22 percent decline in hourly earnings since 2000-02.

In the most recent three-year period, the wage gap is significant; white female college graduates made 78 cents for every dollar a similarly-educated white male earned. Female black and Hispanic college graduates made only 65 cents and 49 cents, respectively, of similarly-educated white men. 

There is no question that earning a bachelor’s degree significantly increases lifetime earnings and opens up job market opportunities, but to understand the shifting economy, it’s critical to know that earnings for those with a college degree or higher have fallen off in the last 15 plus years. This underscores the fact that the economic gains of the last few decades have only been realized by those at the very top, and blue collar and white collar workers alike are not sharing in the prosperity.

On HB 1885 — The Sanctuary Bill

October 24, 2016 - 3:04pm

Legislation rushed to the finish line in an election year is notorious for being both badly crafted and motivated by less than pristine motives. And that certainly goes for HB 1885, the anti-sanctuary city bill passed by the House recently and currently under consideration in the Senate this week. 

There is a lot wrong with the bill, starting with the intention of its sponsors to appeal to the anti-immigrant voters whose ire has been inflamed by Donald Trump and continuing on to its likely consequence of leading to racial profiling that undermines police-community relationships, and thus effective policing, in (documented and undocumented) immigrant communities.

But here I want to focus on the potential economic costs of the bill to the counties and cities of Pennsylvania—costs that have been barely considered in the fast-track legislative debate on it. The House Fiscal Note on the bill does not even try to identify, let alone estimate, these potential costs.

In doing this analysis, I will concentrate on one feature of this multi-faceted bill, its requirement that police officers in any jurisdiction comply with any request by the Immigration and Customs Enforcement (ICE) agents to detain people suspected by ICE of being undocumented for forty-eight hours beyond their release date so that ICE can decide whether to take the individual into federal custody. The bill would deny municipalities that do not comply with ICE requests all state support. A loss of state funding would be disastrous for the budgets of every municipality in the Commonwealth. 

Forcing municipalities to comply with all ICE detainer requests will, however, place three serious economic burdens them: the costs of holding people in prison far longer than they might otherwise be held in response to ICE detainer requests; the costs of paying damages to United States citizens who are unconstitutionally held in response to such requests; and the costs to businesses; and the costs that fall on business whose employees cannot get to work and families who lose their source of support when people are imprisoned because of an ICE detainer request.

 

The Costs of Incarceration

The first costs likely to result from HB 1885 are those of incarcerating people in county and municipal jails who would be incarcerated or incarcerated for substantially longer periods of time than they otherwise would be due to the enactment of HB 1885. 

In analyzing those costs, we can take advantage of Colorado’s experience with SB 90, a law with provisions similar to HB 1885. SB 90 was enacted in 2006 and repealed in 2013, in no small part because the unexpectedly high costs of implementing the legislation. 

One might think that additional costs of imprisonment due to HB 1885 would be solely the result of obeying a detainer request from ICE to hold someone forty-eight hours beyond when they would have been released. The experience of Colorado shows us, however, that the true extent of additional incarceration resulting from HB 1885 is likely to be far greater.

To understand this, one must recognize that the majority of people arrested by the police officers are not held in prison at all or for very long. Many arrests for low-level crimes are non-custodial. In those cases, a police officer detains someone only long enough to issue a citation or summons to appear in court at a later date. Custodial arrests occur when the police arrest offenders and transport them to a detention center of some kind where they are booked and held until they are released (sometimes after posting bond) or their case is adjudicated. 

SB 90 in Colorado had the unintended consequence of incarcerating many more people and for much longer in two different ways. On the one hand, police officers carrying out what would be an otherwise non-custodial arrest of someone suspected of being an undocumented immigrant, would, under SB 90, place such a person in custody and then report them to ICE. On the other hand, people suspected of being an undocumented immigrant who were booked and held after a custodial arrest were generally deemed to be ineligible for pre-trial release even if they were capable of and willing to post bond. 

A study of the effect of SB 90 on incarceration practices in Denver, carried out by our sister organization, the Colorado Fiscal Institute (CFI), showed that these two consequences of SB 90 cost municipalities in the state an additional $13 million per year. Because Pennsylvania is likely to differ from Colorado in a number of ways, it is not easy to estimate the added cost of the additional incarceration that would result from HB 1885 in Pennsylvania. 

But if we simply extrapolate from the best estimate of the proportion of population in Pennsylvania who were undocumented immigrants in 2010 (1.3%) as compared to Colorado at the same time (3.6%) and adjust for inflation, our estimate of the costs of HB 1885 to the county and municipality governments in the state is $5.2 million. If, on the other hand, costs in Pennsylvania were roughly proportional to the absolute number of undocumented immigrants—which is about the same in the two states—our estimate would rise to almost $13 million.

 

The Costs of Settling Lawsuits for Civil Rights Violations

A second potential cost of HB 1885 is that of settling lawsuits for the unjust detention of U.S. citizens. A statewide policy of responding affirmatively to every ICE detainer request runs the risk of detaining citizens of the United States who then are likely to successfully sue the municipality and / or county for violating their civil rights. 

This is not an idle or fanciful threat. It has happened in Pennsylvania. In November 2008, Ernesto Galarza, a New Jersey-born U.S. citizen of Puerto Rican Descent was illegally held for three days in the Lehigh County Prison despite posting bond after ICE requested his detention on the suspicion that he was an undocumented immigrant. Galarza sued for damages on the grounds that his imprisonment violated his civil rights. He ultimately won, and United States and the City of Allentown together paid Galarza $50,000, and Lehigh County paid $95,000 in damages and attorney’s fees.  

The determination on the part of county and municipal governments to avoid similar lawsuits, is one reason that many Pennsylvania jurisdictions have written or unwritten policies to not honor detainer requests from ICE.

 

The Costs to the Community

In addition to the costs of incarceration and the threat of lawsuits for the violation of the civil rights of citizens, there are broader costs that would result from instituting a state wide policy to comply with every ICE detainer.  There are the costs businesses must bear when immigrants are detained and cannot show up for work. And there are both private and public costs associated with the hardships imposed on the families of people who are incarcerated—many of which include U.S.-born children—including loss of income and a strain on social services and local schools. These broader burdens are difficult to quantify, but are undoubtedly real.

 

Conclusion

I have not attempted to give firm estimates of all the costs of HB 1885. My goal has been to come up with the best estimate we could within current time constraints. This analysis shows that those costs are possibly quite large and that they have not yet been considered in the General Assembly’s evaluation of this bill. Regardless of whether one supports the general approach of HB 1885, it is impossible to deny that the General Assembly should seek more information and carefully think through the potential cost of HB 1885 before rushing to enact it. We should not follow Colorado down the path of responding to anti-immigrant fervor by putting a new law in place without understanding its consequences and costs. 

For more details on the legislation see our policy brief