State House Sound Bites

Capitol reporter Mary Wilson covers Pennsylvania politics and issues at the Pennsylvania state capitol.

With low revenues, governor & GOP lawmakers play blame game

Written by Mary Wilson, Capitol Bureau Chief | May 2, 2014 4:47 PM
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Republican state lawmakers and the governor are blaming Congress for the commonwealth’s money problems. But economists say the criticism is not warranted.

Pennsylvania’s tax revenue haul in April was almost nine percent below estimates.

Republican Senate Appropriations Chairman Jake Corman said Wednesday that part of the reason is the end of federal tax breaks on capital gains, dividends, and higher wage earners.

“The high tax increase on growth, capital gains has shortened up revenue in this commonwealth and other states around the nation,” Corman said on the Senate floor Wednesday. The next morning, Gov. Corbett made the same point about federal tax policy changes during remarks at an event with the Harrisburg Regional Chamber & CREDC.

But the state's Independent Fiscal Office Director Matthew Knittel said Pennsylvania didn’t lose revenue -- it saw a shift. He said people wanted to avoid tax rate increases on capital gains and payments to shareholders – so many pulled their income into the 2012 tax year.

“Individuals cashing in their capital gains, trying to get that income in under the lower tax rate -- they’re pulling it forward, they’re cashing it in in 2012 instead of 2013,” Knittel said.

The result is a temporary drop in state tax collections for the 2013 tax year, and griping from lawmakers. But 2012 saw a big boost in state tax revenue because of that same shift – and lawmakers weren’t griping then.

Reuters reports on a “bulge” that resulted in a change in federal tax policy as money-movers tried to take advantage of lower tax rates:

The end of federal tax breaks at the end of 2012 created a bulge in state revenue in the first part of 2013, as most states pattern their tax code after the federal one. Personal income tax collections surged after people sold off investments, advanced bonuses and made other moves to take advantage of the so-called Bush tax breaks.

At the same time, a strong stock market generated capital gains.

But the revenue rush ended quickly. By the final quarter of 2013, personal income tax collections were only 0.4 percent higher than in the fourth quarter of 2012, according to Rockefeller.

The Rockefeller Institute, which studies public policy as part of the State University of New York, called the effect a “temporary ‘bubble’ in tax receipts,” and noted that many states saw strong growth in personal income collections in 2012 as taxpayers sought to avoid paying higher tax rates in 2013.

“It was a windfall for the state last year,” said Sharon Ward, director of the left-leaning Pennsylvania Budget and Policy Center. “A little more came in last year, a little less came in this year.”

“It was not as it has been billed: ‘big bad, Barack Obama and Congress caused this problem,’” Ward added.

Published in State House Sound Bites

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