Shapiro’s Backward Budget
Pennsylvania’s most precious resource – people – are leaving. Gov. Josh Shapiro’s newly adopted 2024–25 state budget, once more, mimics the policies of other declining states, guaranteeing this downward trend will continue.
From 2013 to 2023, Pennsylvania, on average, lost 25,000 people annually to other states through migration.
Where did they go? Recent Independent Fiscal Office analysis shows Pennsylvanians moved to Florida, the Carolinas, Delaware, and Texas. Today, more income flows out of Pennsylvania than in – on net, a negative $2.76 billion.
These destination states have two things in common: lower taxes and business-friendly environments. Of the 10 states with the largest population percentage growth between 2022 and 2023, five slashed personal income taxes in the past two years, and two have no income tax.
High taxes, alongside the cost of living and jobs, are one of the top reasons Pennsylvania voters say push the exodus.
Shapiro could have assuaged these concerns in the new budget, but he didn’t.
Shapiro had the opportunity to cut the personal income tax (PIT) rate. The state Senate passed legislation with bipartisan support to drop the PIT from 3.07 to 2.8 percent. Instead, the governor ignored it.
Shapiro could have eliminated the Gross Receipts Tax on electricity – again, no dice.
Shapiro campaigned to reduce the Corporate Net Income Tax. But this budget doesn’t do that, either.
Shapiro could have supported small businesses by eliminating caps on Net Operating Loss (NOL) deductions, essentially a start-up penalty for new businesses. Instead of repealing NOL, the budget only raises the cap for prospective losses. Pennsylvania remains one of only two states to cap NOL.
Tax reform isn’t the only reason Shapiro’s budget is backward.
The $47.6 billion budget spends more than ongoing revenues, snowballing the existing structural deficit. This year alone, overspending will eat up $3.6 billion from our reserves, setting up a terrible choice between illegally draining our Rainy Day fund or raising taxes.
This trajectory is the pathway of high-tax, shrinking states like California, where taxpayers face a nearly $45 billion structural deficit.
Moreover, new handouts to favored special interests drive this excessive spending.
The state budget includes an $85 million handout to mass transit systems with declining ridership.
The budget also supersizes the Pennsylvania Strategic Investments to Enhance Sites (PA SITES) program. This corporate welfare program will borrow $400 million to redevelop industrial sites. Taxpayers will pay $15 million in interest this year, hoping to attract big business.
Pennsylvania ranks sixth among states for corporate welfare spending since 2017. States spending more include Ohio, New York, Alabama, California, and Kansas – all lost population between 2021 and 2022.
Clearly, picking winners and losers is not the pathway to prosperity.
What else do growing states have in common? Education systems that fund children, not buildings.
In growing states like Florida, North Carolina, and Utah, all students are eligible for funding that follows them to their school of choice. Georgia and Tennessee – two other popular destinations for outgoing Pennsylvanians – provide scholarships for students in low-performing schools.
Shapiro had the opportunity to do the same with Lifeline Scholarships, most recently codified as the Pennsylvania Award for Student Success (PASS) Scholarship program. But the governor reneged again on his promises of scholarships for low-income students in Pennsylvania’s worst-performing schools.
Instead, Pennsylvania continues to reward failing schools with more resources. For example, Philadelphia, Greater Johnstown, and Lancaster school districts have schools where zero students are proficient in reading or math. Yet, they received an additional $143 million through the new Ready to Learn Adequacy grants, on top of basic education funding increases.
Even worse, the budget sets aside $100 million for districts that lose students to public cyber charter schools. Instead of directly funding our children, taxpayers are sending more dollars to district schools when students leave.
Changing Pennsylvania from a shrinking state to a dynamic place of opportunity requires good policies and leadership. Unfortunately, Shapiro provided neither.
Shapiro’s budget takes Pennsylvania in the wrong direction. Rather than championing taxpayers and low-income students, the governor favored campaign donors, photo ops, and press release politics. Because of the governor’s neglect, Pennsylvanians will continue to vote with their feet and leave the commonwealth for greener out-of-state pastures.
