U.S. Tax: Zeroing in on budget season

21 May 2010 -- In the midst of campaigns and elections, the state announced April revenues fell $293 million short of expectations.

The revenue shortfall stands at $719.6 million so far this year, making a billion dollar budget gap not just likely, but imminent. The deadline for the legislature to pass and the governor to sign the 2010-2011 budget is June 30.

While Senate Majority Appropriations Chairman Jake Corman (R-Centre) said that the new revenue numbers render the governor's budget proposal and the budget passed by the House out of balance, Governor Rendell has stated that the state budget remains constitutionally intact.

The governor noted several revenue enhancements and funding streams that will help balance the budget including: an additional $275 million from the federal Department of Health and Human Services for Medicare Part D payments; $125 million as part of a hospital assessment; and $150 million that was originally designated for tax refunds but was not needed.

The governor also continues to push for new taxes on natural gas extraction, cigars and smokeless tobacco products. He has also proposed eliminating the vendor sales tax discount, and enacting other business tax changes to produce more revenues.

In the meantime, a group of six Democratic senators sent a letter to Governor Rendell opposing his proposal to eliminate the sales tax exemption on professional services in Pennsylvania. The governor has proposed to decrease Pennsylvania's sales tax from 6 percent to 4 percent, but eliminate 74 exemptions. Among the exemptions that would be taxed under the governor's proposal are: non-prescription drugs; residential electric; residential fuel oil and gas; rail transportation equipment; school buses; scientific research and development services; and waste management and remediation services.

Led by Senator Mike Stack (D-Philadelphia), the group said that the expansion of the sales and use taxes on professional services such as accounting, financial, legal, medical, and architectural services would be harmful to taxpayers, particularly during the current economic recession. The letter urged that the sales and use tax on professional services be removed from negotiations, and that the focus be placed instead on other tax proposals such as taxing natural gas extraction, taxing tobacco products, or adding other exempted items (other than professional services) to the sales tax. The group also recommended additional spending cuts.