PA May See The Nation's Strongest Post-Pandemic Sales Tax Boost
HARRISBURG, PA (WSKG) – A new report shows Pennsylvania is showing signs of a strong economic recovery in one key area.
Researchers at the left-leaning Tax Policy Center found that the Keystone State had one of the steepest drops in sales taxes in the nation last year. But now, forecasters predict Pennsylvania will rake in nearly 15 percent more this year than last. That would be the largest increase of any state.
It’s a much different fiscal place than even the state’s Independent Fiscal Office thought Pennsylvania would be at this point.
In June 2020, mere months into pandemic-induced lockdowns and business closures, IFO forecasters predicted the state would lose as much as $1.045 billion in sales and usage taxes, but still collect about $12 billion by June of this year. By the time that month rolled around, its official revenue estimate predicted Pennsylvania would take in $14.3 billion.
“Almost every single state got it wrong,” Senior Research Associate Lucy Dadayan said. “They thought that their revenues wouldn’t perform as good as they did.”
Dadayan said the encouraging prediction is supported partly by what happened last year: fewer people lost their jobs than initially thought and more people shifted their money away from services like restaurants and toward goods like groceries.
“They ended up staying at home, not taking vacations, and spending that money on house remodeling or purchasing goods for home offices,” she said.
Pennsylvania also doesn’t rely too heavily on things that went away during the pandemic, like tourism, and it charges a six percent sales tax on online goods and services. The Tax Policy Center report points to both things as ways the state can more quickly recover from pandemic-induced damage.
But economists like Dadayan say though those are good signs, some big economic questions remain.
“What is going to be a permanent change, and what is going to be a temporary change as a result of the pandemic,” she said “Is remote work here to stay? Are people going to spend as much on goods as they did during the pandemic?”
Depending on what happens, Dadayan said the state may need to get ready for another revenue drop.
But state lawmakers already have a plan for this: they opted to sock away most of Pennsylvania’s $7 billion in American Rescue Plan money and put extra tax revenue away in an emergency savings account.
“There’s no crystal ball. We don’t know how things will be two years from now,” Dadayan said. “But if they have the money to support immediate needs of different programs and services, then yeah sure: put it in a savings account.”