Business Tax Cuts vs. Spending Cuts

The Department of Revenue had barely gotten the words “improving revenue collections” out to the masses when talk at the State Capitol immediately turned to what kind of budget cut restorations lawmakers could make in the coming two months.  The budget proposed by Governor Tom Corbett was based upon an assumed fiscal year shortfall of $700 million. 

That number now looks to be a little closer to $350 million, which is a much more manageable figure for budget analysts to handle when cobbling together the fiscal year 2012-2013 state budget.

We know where the proposed cuts are, and we know how much they are worth.  And very soon, we’ll know how much money the state will have to spend.

For the first time in years, it looks like lawmakers might – and it’s an awfully big “might” – be able to walk out of town without too much budgetary pain being inflicted on their various constituencies.  But there will ultimately be a very stark choice that they will make, and it is a fight that will ultimately determine how close to a hold-harmless budget we will actually see.

On one side, there will be higher education, the basic education Accountability Block Grant, and the 20% cut to DPW’s county human services funding streams.  On the other side, there will be the continued phase-out of the Capital, Stock and Franchise Tax and the current Sales Tax Discount.

The battle of spending versus business tax cuts will perhaps never be simpler or more clear than it will be in the next 60 days.  And that is because the size of the cuts necessary to close the end-of-year budget gap might match up pretty close to exactly what these two business tax cuts are worth to the ledger.

If revenue collections keep pace, or improve a bit, it is not unrealistic that the deficit could drop below the $300 million point.  From there, we expect some lawmakers to make the case that basic and higher education, along with human services funding, could actually be held close to level-funded if the state stops the planned phase-out of the CS&F Tax, worth an estimated $275 million annually.  Add in the $75 million the state saves by ending the sales tax discount, and you are outta town. Even counting only a half-year of savings by freezing the CS&F, that $140 million and the aforementioned $75 million don’t only get you in the ballpark, they get you somewhere between third base and home plate.

Opponents will of course argue that in a recession, the last thing corporations and businesses need is uncertainty in their tax rates.  A strong case will also be made that simply restoring all the cuts isn’t a sustainable budget strategy, as it leaves no margin for error if the economy takes a trip south again.

But there are a few things we know to be fairly certain.  No matter how many times or how creatively anyone makes the case, this General Assembly and this governor are not raising taxes.  That takes the Marcellus Shale statewide severance tax idea off the table.  And it is also a safe bet that despite the efforts of some folks in the House of Representatives, closing the Delaware Loophole to inject hundreds of millions into the state’s checking account will not happen, either.

In the absence of those two revenue sources, there seems to be very few places for education and human services advocates to turn.  What they will find is that when it is a straight-up discussion of lowering business taxes or enduring more painful budget cuts, the conversation gets a whole lot simpler in the eyes and ears of the public.

That is why we believe that the next 60 days will feature a budget fight that is, for the first time in a long time, a pretty simple one.  $350 million, in state budget parlance, is not a terribly large gap to fill.  And the choices are right there, in black and white. 

Comments

[Sales training]

The Senate this week faced a choice between two starkly different tax plans -- one, authored by Democrats, which would protect tax cuts for every American family, and another, authored by Republicans, which raises taxes on working-class families to fund special breaks for the very wealthiest Americans.

[Top Directory]

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[Confidential Invoice Factoring]

The business tax accounting method that is used by the organization can be changed by the taxpayer. In such a case the tax payer needs to have the consent of the secretary of the treasury.