Pennsylvania Needs $150 Billion in Growth, Fast

Pennsylvanians, we’ve got a problem.

Within three years, state government is projected to face a $9 billion budget deficit. Harrisburg has three levers to pull: cut spending, raise taxes, or grow the economy.

History suggests policymakers rarely choose just one, but increasingly only one is politically viable.

Broad tax hikes carry political risk in an era shaped by social media outrage and hyper-partisanship. That leaves growth as the most politically palatable option, but also the most misunderstood.

Rarely have Pennsylvania lawmakers cut spending, but the reason goes beyond the obvious political calculus of picking winners and losers in budget cuts. 

Deep cuts run headfirst into structural obligations like Medicaid, pensions, education, and human services. For nearly a decade, Pennsylvania has operated under a structural deficit approaching $2 billion annually, which widens over time.

Accounting for inflation, the structural deficit creates a situation where cuts alone simply cannot bail out water fast enough to stop the ship from sinking.  A 20% reduction in state government spending,  yielding $9 billion in savings, buys about five years before new revenue must be found.  The likely harm caused by draconian cuts outweighs kicking the can down the road. 

Policymakers have not raised taxes for all Pennsylvanians in over two decades. 

The surprising consequence of the 2004 Personal Income Tax hike was political stability, not backlash. Gov. Ed Rendell won re-election in a landslide, and not a single legislator lost a seat. 

To collect $9 billion in new tax revenue, the personal income tax would need to be raised by nearly 50%, taking the total income tax rate up to 4.5% over the current 3.07%. By comparison, the 2004 vote hiked the personal income tax by almost 10%. 

Today’s social media ubiquity and hyper-partisanship could not be more different than the political environment of the past, making passage of a broad-based tax hike highly unlikely.    

While regulating skill games and legalizing adult use marijuana can bring in new revenue, it barely makes a comparative dent with even the most optimistic projections of $500M combined. Yet every penny counts! 

The state’s GDP is a little over $800 billion today, which yields about $50 billion in state tax revenue to fund government operations.

The state’s GDP would need to grow by about $150 billion to bring in $9 billion of new tax revenue to close the pending shortfall three years from now.

In other words, the state’s GDP would have to grow by around 5% every year for the next three years just to make ends meet. 

It sounds manageable, except for the fact that for the past twenty years the state’s GDP growth has averaged 1.5% annually, which is less than the rate of inflation. 

Setting aside Pennsylvania’s anemic growth history, $150 billion is a lot of GDP.

For comparison, the entire GDP of Pennsylvania’s manufacturing industry is $107 billion. The GDP of the state’s healthcare industry is $106 billion. The state’s critical shale industry represents $7 billion of GDP.  

Finding $150 billion in new GDP is unlikely to come from a single industry, but policymakers do have some historical success in trying to start industries from scratch.

Pennsylvania has tried this playbook before.

The rise of e-commerce created a unique opportunity for Pennsylvania to serve as the fulfillment center hub of the United States due to its location and affordable land.  The Rust Belt welcomed warehouses as a lifeline, with Pennsylvania gaining a reputation as a “warehouse friendly” state with almost 900 million square feet of storage. 

Those efforts have netted Pennsylvania a little over $8 billion of GDP.   

Pennsylvania’s warehouse boom offers a lesson hiding in plain sight: growth rarely arrives because Harrisburg declares it. Growth happens when policy aligns with geography, workforce, and market demand.

The next chapter of growth will require that same realism.

Energy infrastructure, data centers, advanced manufacturing, and life sciences each offer pieces of the puzzle, but none will succeed if layered beneath permitting delays, regulatory uncertainty, or political whiplash that signals instability to investors.

Growth is a strategy built through dozens of incremental decisions that compound over time.

Lawmakers should resist the temptation to chase a single silver-bullet industry and instead focus on creating a durable environment where multiple sectors can scale simultaneously.

That means faster approvals, predictable rules, and an honest conversation about how Pennsylvania competes with faster-growing states.

Without sustained economic expansion, the Commonwealth will eventually be forced into the false choice between higher taxes and painful cuts.

Growth is not the easy option.  It is simply the only sustainable one.