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Analysis Highlights Heavy Burden of Wolf’s Budget Proposals

The state’s Independent Fiscal Office released an analysis last week that anticipates the tax increases proposed by Gov. Tom Wolf in his 2016-17 budget plan would generate $2.66 billion for new state spending. This is slightly less than the $2.7 billion that the governor’s budget office estimates would be the full amount of tax hikes under his proposal. The IFO estimates that the proposed retroactive Personal Income Tax increase would generate the most revenue, netting $1.27 billion.

The IFO analysis also examined the impact of the governor’s proposed severance tax – a 6.5 percent levy that maintains the current impact fee but allows drillers to claim impact fee payments as a credit against the severance tax. The IFO notes the significant discount that Marcellus drillers are being paid compared to that of other major national hubs, and projects that this discount will remain in effect for the next several years. Because the governor’s proposal does not allow for deduction of post-production costs, the effective rate of the proposed severance would be the highest among other states that, along with Pennsylvania, lead the country in gas production: Ohio, West Virginia, Texas and Oklahoma.

FO also examined the employment effects of raising the state’s mandated entry wage to $10.15 per hour. The analysis projects a loss of nearly 30,000 jobs due to the increase, with the job losses felt disproportionately by part-time employees, as well as a “slower rate of hiring compared to a counterfactual where minimum wage did not increase.”

The final piece of the 2015-16 budget becomes law following an announcement by the Wolf administration last week that the governor will not veto or sign H.B. 1589, the Fiscal Code Bill. Per the Pennsylvania Constitution, legislation passed by the General Assembly automatically becomes law if the governor does not act on it within 10 days.

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