Impact of Shrinking Labor Pool, Tax Structure Shared at Appropriations Hearing

In anticipation of the return to session and Governor Shapiro’s first budget address in the coming weeks, Republican members of the House Appropriations Committee held a public hearing last week on tax reform and its effect in Pennsylvania. Committee members heard fiscal analysts share data about Pennsylvania’s shrinking labor pool and aging population – a problematic combination for the state’s economy.

Based on data shared at the hearing from the Independent Fiscal Office, the Commonwealth is expected to operate at a deficit in each of the next five fiscal years with spending outpacing revenue. The IFO cited increased government labor spending along with rising Medicaid costs and declines in tax revenue from personal income, corporate net income and sales and use taxes.

According to the New Castle News, Timothy Vermeer, a senior analyst with the Tax Foundation, a national nonpartisan tax policy think tank, testified that there are 60,500 fewer people employed in Pennsylvania since the COVID-19 pandemic began in early 2020 and that the Commonwealth ranks among the bottom third of the states in terms of the structural competitiveness of its tax policies, falling in the bottom 10 with its 8.99 percent CNI tax rate. He stated that at the very least, the legislature and Gov. Shapiro should continue the planned gradual reduction of the CNI to 4.99 percent by 2031 and also suggested the implementation of net operating loss provisions. “It really hammers capital investment,” Vermeer said of what he described as structurally uncompetitive tax policies. “It’s capital investment that’s essential for economic growth.”

Further details from the hearing can be found in this story.


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