TAX NEWS - 2010

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Pennsylvania Tax: Harrisburg Budget gap widens

Budget time in Harrisburg is never easy, but Republican lawmakers in Washington just made it more difficult.

The legislature and Gov. Rendell are making progress toward balancing Pennsylvania's budget in another year of weak tax collections. Democrats lowered their spending proposal from $29 billion - an unrealistic 4.1 percent increase over last year - nearer the Senate Republicans' demand of $27.5 billion.

Negotiations over the weekend suggest a deal is near, and the state could have a budget by the June 30 deadline for the first time in Rendell's eight-year tenure.

But Senate Republicans in Washington complicated that work by blocking a jobs bill that would have sent $850 million in extra Medicaid funds to Pennsylvania.

Pennsylvania wasn't the only state counting on this extra federal aid. Governors in 30 states crafted budgets anticipating this money, including New Jersey, which will lose $570 million.

The rejection of this state aid is extremely shortsighted, and governors are still lobbying Congress for the money. But Harrisburg must proceed with the job of closing a budget gap that's suddenly $850 million larger.

While cuts unfortunately are necessary, Washington's inaction also should compel Pennsylvania officials to move ahead with a sensible package of tax hikes on tobacco, natural gas producers, and multistate corporations. These moves would result in tax fairness on several fronts, save some government workers from losing their jobs, and prevent even deeper cuts to needed programs.

Raising taxes on cigarettes, and taxing cigars and smokeless tobacco, should be no-brainers. Eliminating a discount given to vendors simply because they pay state sales taxes as required should pass easily.

A tax on natural gas production, without exemptions sought by the industry, shouldn't even be a question. But drilling companies have spent more than $7 million in the past nine years lobbying Harrisburg and donating to the reelection campaigns of key elected officials to prevent a tax.

Oil and gas companies pay this severance tax routinely in other states. They should pay it in Pennsylvania, too. An effort to approve this tax failed in the House earlier this month, when Democrats couldn't agree on how to split the revenue between the state and municipalities. Their intraparty bungling was a gift to Senate Republicans, who have killed the tax in the past.

Closing a tax loophole that allows corporations with out-of-state headquarters to avoid income taxes should finally be approved after years of talk. Taking this action would lower the overall corporate income-tax rate, resulting in a tax cut for many businesses, but it would raise about $600 million annually from companies that currently don't pay their fair share.

These targeted tax increases, combined, would raise nearly $1 billion. Painful cuts would be necessary even with these added taxes. Without them, this year's state budget looks much worse.

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