Pennsylvania Avoided Tax Hikes—But Only for Now

Twelve days behind schedule — but still 110 days earlier than last year — Pennsylvania lawmakers finally passed a $52.2 billion state budget. The deal, rushed through during a rare Sunday session, avoided tax hikes and protected the state's Rainy Day Fund.

While lawmakers rejected some of Gov. Josh Shapiro's most irresponsible spending proposals, they failed to solve Pennsylvania's underlying problem: government spending continues to grow faster than taxpayers can afford. 

This year's budget battle began with the governor's $53.3 billion spending plan, which House Democrats eagerly embraced. The proposal recklessly expanded spending at unsustainable levels, while assuming hundreds of millions of dollars in speculative revenue from legalized marijuana and skill games that simply does not exist. 

Fortunately, lawmakers ultimately rejected more than $1 billion of the governor's proposed spending. 

That spared taxpayers from an even larger budget this year – one that would have expanded the deficit and forced future tax hikes of nearly $2,100 on families. 

Pennsylvania remains on an unsustainable fiscal path. 

The commonwealth still faces a structural deficit exceeding $4.8 billion. According to the Independent Fiscal Office, that deficit will continue to grow over the next five years unless lawmakers bring spending under control. 

In other words, the problem hasn't disappeared. It's simply been postponed. 

To be clear, this approach of looking under the state’s “couch cushions” instead of raiding the Rainy Day fund is commendable—in fact, the Commonwealth Foundation has long advocated for using these funds and even identified 34 special funds holding roughly $5.3 billion in cash balances. Using a portion of those dormant dollars allowed lawmakers to balance this year's budget without raising taxes or draining the Rainy Day Fund. 

Pennsylvania families can certainly breathe a sigh of relief. 

But lawmakers won’t be able to depend on the “couch cushion” approach in future years. 

Unless spending is brought into alignment with recurring revenue, policymakers will soon find themselves looking for new ways to close the deficit — and that almost certainly means higher taxes on working families and employers. 

In addition to rejecting his initial tax-hike inducing budget proposal, lawmakers also rejected several other misguided proposals advanced by the governor. 

Earlier this budget season, Gov. Shapiro and House Democrats launched an unprecedented attack on Pennsylvania's school choice tax-credit scholarships. Their legislation threatened thousands of scholarships that help low- and middle-income students attend schools that better meet their needs. 

The public overwhelmingly rejected that proposal. 

Facing significant opposition, House Democrats abandoned their effort to slash scholarship funding during budget negotiations. As a result, the Education Improvement Tax Credit program remains intact, preserving educational opportunities for more than 101,000 Pennsylvania students. 

Lawmakers also wisely left Gov. Shapiro's so-called "Lightning Plan" on the cutting-room floor. The governor's proposal would have layered new taxes and mandates onto Pennsylvania's energy sector, driving electricity prices even higher for families and businesses already struggling with rising utility bills. 

Pennsylvania voters opposed the plan, and lawmakers ultimately did as well. 

But while taxpayers avoided several costly mistakes this year, the budget still falls well short of what the commonwealth truly needs. 

Lawmakers once again increased spending without addressing the structural deficit. They failed to expand educational opportunity despite roughly 70,000 students remaining on scholarship waiting lists. And they continued funneling hundreds of millions more into public education without pairing those investments with meaningful accountability or greater educational choice. 

Pennsylvania now stands at a crossroads. 

Lawmakers can continue relying on one-time budget gimmicks while spending outpaces revenue, or they can embrace the reforms necessary to put the commonwealth on stable financial footing. That means balancing the budget, expanding educational opportunity, and unleashing Pennsylvania's abundant energy resources instead of burdening them with new taxes and mandates. 

This year's budget spared taxpayers from immediate tax hikes. 

Next year's budget may not be so forgiving. 

Andrew Lewis is the President & CEO of the Commonwealth Foundation, Pennsylvania's free-market think tank.