Budget Agreement a Growing Challenge for State Lawmakers
Agreeing to a new budget when there are billions of excess funds in state coffers is proving more of a challenge for lawmakers than expected. Hopes for an early budget were dashed when the state House and Senate cancelled their scheduled June 23 and 24 session days. The General Assembly will return the week of June 27 with the July 1 deadline looming. The PICPA government relations team is monitoring activities at the Capitol and will remain vigilant until we have a new state budget.
In other activity, Senate Democrats held a press conference shortly after President Biden called for federal and state lawmakers to temporarily suspend gasoline taxes. “Our stance is simple: we are calling on state Republicans to join us in supporting a suspension to the state gas tax,” said Sen. Jay Costa (D-Allegheny), Senate Democratic Leader. “We know there is concern about a loss of revenue while the pause is in place, but Pennsylvania has billions in surplus funds that can be used to maintain roads and bridges during the gas tax holiday.”
In the Senate Finance Committee, three bills were approved:
- House Bill 385, sponsored by Rep. George Dunbar (R-Westmoreland), makes changes to the personal income tax.
- House Bill 1342, sponsored by Rep. Jack Rader (R-Monroe), exempts from the Inheritance Tax transfers of personal property that are the result of a decedent military member.
- Senate Bill 1205, sponsored by Sen. Devlin Robinson (R-Allegheny), would create a waterfront development tax credit.
The bills now go to the full Senate for consideration.
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CPA-PAC Annual Report Available
The Certified Public Accountant PAC (CPA-PAC), PICPA’s political arm, has posted its 2021 annual report, and it shows that fundraising excelled in 2021. CPA-PAC brought in nearly $214,000, which is a remarkable display of support and political advocacy in a municipal election year.
All funding comes from voluntary contributions, and we are extremely thankful for your continued support. The CPA-PAC’s annual report provides a detailed look at PICPA’s CPA-PAC activities.
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Senate Committee Passes Bill to Improve Personal Financial Literacy
Legislation sponsored by Sen. Chris Gebhard (R-Lebanon) to improve personal financial literacy was passed by the Senate Education Committee. It would require completion of a full-credit economics and personal finance course as a high school graduation requirement.
Senate Bill 1243 would give high school students the education they need on topics such as credit and credit scores; savings and investments; college, auto, and home loans; and planning for postsecondary education.
The content of the course will be in line with standards established by the second edition of the Voluntary National Content Standards in Economics and the 2013 National Standards for Financial Literacy, as developed by the Council for Economic Education.
The bill has been referred to the Senate Appropriations Committee for consideration.
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New Report Critical of Proposed Venue Rule Change
A new report warns that Pennsylvania could be headed toward another health care crisis if the state’s current medical liability venue rule is reversed. The actuarial report, which was commissioned by Senate Judiciary Committee Chair Sen. Lisa Baker (R-Luzerne), studied the impact of undoing a 2003 rule prohibiting venue shopping in medical liability cases in Pennsylvania.
Despite the 2003 rule bringing stability to Pennsylvania’s health care landscape, there has been an ongoing push by plaintiffs’ attorneys to rescind the rule and go back to the days of venue shopping, that many believe lead to unjustifiable jackpot awards.
House Bill 2660, sponsored by Rep. Rob Kauffman (R-Franklin), proposes a constitutional amendment to resolve the question of whether the General Assembly may legislate venue of lawsuits in civil cases. The bill was reported from the House Judiciary Committee this week by a vote of 14-11.
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Dual Hearings Focus on Pa. Economy, Tax Structure
Dueling policy committee hearings in the state House highlighted differing methods to grow Pennsylvania’s economy, including changes to tax and regulatory policies as well as curtailing exorbitant pricing practices.
In the hearings focused on inflation on June 21, members of the House Majority Policy Committee heard from tax experts and employer advocates about long-term solutions to rising costs, how to drive investment, and how to create growth. “There are plenty of things we can do to lessen the impact [of inflation] on our families and employers here in Pennsylvania and to strengthen our economy for the long term,” said Rep. Martin Causer (R-Cameron/McKean/Potter), chair of the committee.
Suggestions included lowering the 9.99% corporate net income tax; increasing the amount of operating losses that may be credited toward tax liabilities; reforming taxes impacting small businesses; addressing regulatory roadblocks, including tort reform, occupational licensing restrictions, civil liability reforms, partisan judicial elections, and the state liquor monopoly; increasing domestic energy production; and expanding the labor force by improving education and workforce development training, as well as eliminating policies that have discouraged many people from returning to work.
On June 22, Rep. Nick Pisciottano, CPA (D-Allegheny) led a House Democratic Policy Committee hearing to discuss actions hurting Pennsylvanians, such as alleged price gouging, and how legislation introduced by House Democrats in Harrisburg can curtail these practices. “Pennsylvanians are facing rising prices of groceries, gas, and goods. The testimony was helpful in finding the root cause of these increases and how legislation introduced by my colleagues and me will actually help citizens of the commonwealth,” said Pisciottano.
Wednesday’s hearing highlighted several pieces of legislation House Democrats have introduced. The Stop Price Fixing Act, introduced by Pisciottano, would enhance the attorney general’s ability to prosecute individuals and businesses artificially raising prices and taking advantage of Pennsylvanians. The End Gas Price Gouging Act, sponsored by Democratic Leader Joanna McClinton (D-Philadelphia) and Policy Chair Ryan Bizzarro (D-Erie), would prevent changing gas prices more than once in a 24-hour period. The Open Markets Act, sponsored by Pisciottano and Rep. Sara Innamorato (D-Allegheny), would end behavior that hurts fair business competition and give the attorney general more power to investigate and prosecute potential anti-trust violations.
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IFO Releases Official Revenue Estimate for Fiscal Year 2022-2023
The Independent Fiscal Office (IFO) released its official revenue estimate for fiscal year (FY) 2022-2023 and a final revised estimate for FY 2021-2022, which ends June 30.
For FY 2022-2023, the revenue estimate is $42.32 billion, a reduction of $5.83 billion from the current fiscal year. Federal funds totaling $3.84 billion and transferred to the General Fund during FY 2021-2022 will not recur in FY 2022-2023, notes IFO. Excluding that one-time transfer and a new transfer to the Public Transportation Trust Fund (PTTF), the estimate expects a decline of $1.48 billion (-3.3%) compared to FY 2021-2022.
Based on strong revenue collections through May 2022, IFO revised its revenue estimate for FY 2021-2022 to $48.15 billion, $6.24 billion above its original estimate in June 2021 (IFO’s official FY 2021-2022 General Fund revenue estimate was $41.91 billion). Since then, revenues in almost every category have outperformed expectations. Significant revisions to the FY 2021-2022 forecast, according to IFO, include the following:
- Corporate net income tax (CNIT) collections are expected to exceed IFO’s estimate by $1.54 billion. This is largely attributable to higher prices that have been pushed forward to consumers, corporate savings from a reduction in business expenses (e.g., travel, remote working), and shifts in consumer purchases to higher-margin products.
- The revised sales and use tax (SUT) estimate is $1.46 billion higher than the official estimate, primarily due to strength in nonmotor vehicle collections ($1.30 billion). The upward revision reflects SUT growth of 9.8% (adjusted) and is driven by strong wage gains, the continued moratorium on federal student loan repayments, delayed spending of federal stimulus payments, and inflation rates that are higher than anticipated.
- The updated personal income tax (PIT) estimate exceeds IFO’s expectation by $2.63 billion, an increase of 20.8% (adjusted for one-time transfers, additional due dates, and COVID-related delayed due dates) over the prior fiscal year. The revision is attributable to strong wage growth driven by a tight labor market, inflation, and increases in capital gains and net business profits.
- Inheritance tax collections continue to outperform expectations, likely attributable to a strong stock market and elevated home values. As a result, the updated estimate exceeds the IFO’s revised official estimate by $265 million, an increase of 16.8% over the prior fiscal year.
IFO also updated its 2021 impact fee collections and outlook for 2022. Pennsylvania collected $234.4 million in impact fees for 2021, an $88.2 million increase from 2020.
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AICPA Expresses Concern Over Corporate Profits Minimum Tax
In a June 21, 2022, letter to leadership of both the House Ways and Means Committee and the Senate Finance Committee, the American Institute of CPAs is calling on Congress to exclude a corporate profits minimum tax from upcoming reconciliation legislation.
In the letter, the AICPA stated that it is concerned that the proposed minimum corporate tax “violates numerous elements of our 12 guiding principles of good tax policy. The introduction of an alternative tax system that is not based on tax law will not simplify the tax system, be certain, be neutral with respect to decision making by management, promote economic growth and efficiency, be transparent, nor minimize the tax gap."
The proposed tax is a revamped corporate minimum tax of 15% on the book income for corporations with financial statement income in excess of $1 billion, the AICPA explains. It is estimated that it would apply to about 200 companies.
The AICPA says the mechanics of the tax are similar to the corporate alternative minimum tax that was repealed under the Tax Cuts and Jobs Act in 2017.
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