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Plan to hike sales tax to break Pennsylvania’s budget stalemate under fire

By Andrew Staub | PA Independent

The price of breaking Pennsylvania’s five-month budget impasse apparently will be the second-highest statewide sales tax in the nation.

Democratic Gov. Tom Wolf and lawmakers have agreed on the broad framework of a budget deal that would increase education funding by $350 million and raise the statewide sales tax from 6 percent to 7.25 percent to generate an estimated $2 billion for school property tax relief.

The agreement is expected to also include pension reform and changes to the way alcohol is sold in Pennsylvania, though those two components have yet to be fleshed out.

Those two aspects of the deal would mark victories for Republican lawmakers, but the sales tax hike presents a potential political minefield, especially for the GOP. It has already prompted quick and intense rebuke from conservative organizations, as well as a grassroots group lobbying for the elimination of school property taxes, not just a temporary reduction.

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TAX HIKE EYED: Pennsylvania lawmakers could turn to a state sales tax increase to break a budget impasse now in its fifth month.

It is “unfathomable” for five months of budget fighting to pass only to see a sales tax increase of about 21 percent emerge from the negotiations, said Anna McCauslin, director of policy for the Pennsylvania chapter of Americans for Prosperity, a limited government group that’s already lobbying to kill the proposed tax hike.

“The property tax system is broken; it needs fixed,” she said, “(but) I do not think you’ll find many people that believe this is the answer except those individuals that just want the budget to be passed.”

Republicans in charge of the General Assembly have been largely opposed to broad-based tax increases that Wolf proposed. They insisted the budget impasse rolled on mostly because the governor wouldn’t move from his position.

However, GOP leadership left a slight crack in the door with a receptiveness to a tax increase if it amounted to dollar-for-dollar school property tax relief. While lawmakers might try to paint the sales tax plan as such, critics of the proposal say it’s not.

That’s because the plan would shift about $600 million in state gaming funds – used for existing property tax rebates that can range from as little as about $40 to more than $600 per homestead – toward the state’s pension payment for public school employees. The sales tax revenue would have to fill that hole before it could provide new property tax relief.

“People are absolutely infuriated. They see the shell game,” said David Baldinger, administrator for the Pennsylvania Taxpayers Cyber Coalition, a vocal grassroots group that’s pushing for the elimination of the much-maligned school property tax.

PTCC favors Senate Bill 76. It would raise the sales tax and expand its base in addition to raising the personal income tax, to fund property tax elimination.  The latest sales tax plan, Baldinger said, might triple his current rebate, but that would still provide only a modest reduction because of his high property tax bill.

A few lawmakers have already told Baldinger they wouldn’t support the plan, but he said he was trying to reserve judgment, given the fluid nature of budget talks. Yet he couldn’t hide his frustration.

“Obviously, I’m pissed off with what they’re trying to do with the sales tax,” Baldinger said, “Because if they pass the sales tax increase, 76 is dead. It’s that simple. It will kill our funding stream, and we can forget about it forever.”

Senate Bill 76 is tentatively scheduled for debate and a vote in the Senate next week, according to state Sen. David Argall, the Schuylkill County Republican who has spearheaded the legislation.

RELATED: PA budget impasse drowns out property tax relief conversation

The statewide sales tax has been at 6 percent since 1968.

Any proposed tax increase could also be problematic for incumbent Republicans running in 2016. The entire House and half the Senate is up for re-election. Citizens Alliance of Pennsylvania, a political action committee that supports conservative candidates, could make a primary election a headache for Republicans who vote to raise the sales tax.

“We would hold leadership in both chambers accountable for this,” said Leo Knepper, executive director of CAP. “If that’s the route that leadership wanted to go, then there would be serious consequences.”

Courtesy of Ballotpedia

DEAL BACK FROM DEAD: Senate Majority Leader Jake Corman, R-Centre, suggested the budget framework might have been off at one point Tuesday, but it re-gained traction later.

As of lunchtime Tuesday, Jay Ostrich, a spokesman for House Speaker Mike Turzai, R-Allegheny, called the budget framework “a work in progress.”

“We absolutely are cautiously optimistic, but there remain many details that need ironed out,” he said.

That optimism appeared to have faded in the afternoon, when state Senate Majority Leader Jake Corman, R-Centre, told a Pittsburgh radio station the framework had sustained a “major setback” and he was not sure it was intact anymore. He told KDKA-AM it was because the Wolf administration misrepresented the tentative framework.

That frustration centered around comments that Wolf’s press secretary, Jeffrey Sheridan, made Monday. He said Wolf had secured a commitment from Republican leadership to boost education funding by $750 million over two years.  Drew Crompton, a top aide for the Senate Republican caucus, called the number “pure fiction.”

Sheridan did not return messages seeking comment.

Some members of the GOP also steamed after Wolf took to his campaign page to claim a win and thank supporters Monday.

“As Governor of Pennsylvania, I could not be more proud of the work you’ve done to help make historic funding for public schools a reality,” the message from Wolf read.

Courtesy of Ballotpedia

EARLY CELEBRATION: Gov. Tom Wolf claimed a win Monday night, irritating some in the GOP.

The brouhaha apparently had faded by Tuesday evening, as Wolf and legislative leaders gathered to talk about the framework.

Knepper believes it’d be better if the deal would fall apart.

That would be welcome news to Matthew Heckman, who owns an IT consulting firm in Schuylkill County and fears lawmakers might try to expand the sales tax to cover services like he offers. That would mean cutting back, or even moving enough of his operations to Delaware to take advantage of its tax structure, he said.

“We’re going to either have a revolt in the primary,” he said, “or at some point we’re going to have an exodus where the commonwealth is in the dumps like California.”

California, it might be noted, would be the only state with a higher statewide sales tax than Pennsylvania should the budget framework turn into an actual budget deal.

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