At a recent Pennsylvania Press Club luncheon Governor Tom Corbett spoke to the over 100 people gathered about the goals he wants to achieve over the next two years most notably state employees pension reform, transportation funding, privatization of the state-owned liquor stores, state lottery privatization and the governing of higher education funding. Of these five issues to address, Corbett was the most mysterious about his plans to tackle continued funding for transportation and decreasing the costs for state employees pensions. In regards to these matters, as reported in the Patriot News, Kevin Harley, Corbett’s Press Secretary, could only offer up that the Governor intends to wait until after the new year when the Legislature returns from holiday break to release his concrete plans for reform and budget control.
What Corbett did not mention during his speech was the impact the looming fiscal cliff may play on implementing his budget plans for 2013 and after. Come midnight December 31, 2012, temporary payroll tax cuts, changes in alternative minimum tax, the tax cuts that went into effect under the Bush presidency in 2001-2003 are set to expire and the Obama healthcare taxes are scheduled to begin which for taxpayers and businesses will have the quadruple-whammy effect. Economic forecasters predict the biggest cuts to land directly on the defense budget and Medicare. At this point, Congress has three options to address a fiscal cliff: do nothing and let the chips fall as they may; delay the implementation of the tax increases another year or find an alternative solution through a compromise. Obviously, there are pros and cons to any of these solutions. Should Congress decide to not make changes to the Budget Control Act of 2011, the United States faces another recession and a stagnant economy. On the upside, the U.S. deficit would drop. If Congress were to make changes to the Act, similar to what happened in European countries, the U.S. would avoid a recession but the deficit plunges deep inside the recesses of a black hole. The best choice would be to find an approach that would support the continued growth in the economy, avoid a recession and decrease the country’s foreign debt; however, the downside is that it takes time to come up with a workable plan that would accommodate all of the issues.
According to reports on Reuters News, on November 16th, a bi-partisan committee comprised of President Obama and four members of U.S. Congress met to discuss the impact of the fiscal cliff and strategies to avoid a recession due to the $600 billion tax increases and spending cuts that will begin in 2013. For the Democrats, their proposal is to increase taxes on the wealthy and to put the $80 billion annual revenue towards the spending cuts. Republicans, who have historically shied away from taxing the wealthy, suggest making cuts to Medicare and other healthcare programs to cover the shortfall. Ultimately, both sides want to reach the same goal: fiscal responsibility in government that would ultimately lead to tax reform and bring about reasonable spending cuts. The biggest unknown right now is how the committee is going to work together to find a reasonable solution that will satisfy both sides. In negotiating some kind of compromise, both sides including the President will have to give some to get some. To do nothing will only intensify the problem in the long-term. Just the same, to only seek short-term solutions and to not work towards a long-term fiscally responsible plan is how the U.S. got into this situation. The fact of the matter is that as a country we spend more than what we earn and the deficit continues to grow. Unpopular as it may be, the solutions offered up by both sides may be the best alternatives to avoid a fiscal cliff. As much as politicians on both sides pledge to work together on a fiscal plan, almost immediately after the election ended, the parties backed into their original positions holding firm. This is in direct opposition of what the voters want which is consensus and compromise. The reality of the situation is despite that objections raised that we may need to make cuts to entitlement programs such as Social Security and Medicare and to raise taxes on people who earn more than $250 million a year and to take the revenue and put it towards lowering the debt.
The fall out from a fiscal cliff is not just a federal problem to solely be corrected in Washington D.C.as each state will face certain consequences in their budgets and tax payers will most likely see tax increases they have not seen in years. In Harrisburg, Governor Corbett has an agenda and goals he wants to achieve over the next two years.Proud that he managed to keep campaign promises to cut Pennsylvania government spending and to not raise taxes, Corbett has managed to implement growth into certain industries, reform unemployment compensation and support increased funding for school-choice supported programs. Having made good on some of these campaign promises, Corbett, who is halfway through his term as Governor, needs to address ways he intends to continue on the long-term goal of keeping Pennsylvania fiscally responsible. Needless to say, all the reforms that Corbett has implemented and plans that he wants to move forward on in the future, might be ways that he sees to reduce the fall out from a fiscal cliff should the legislators in D.C. fail to come up with a workable plan. One solution Corbett seems to offer is to use revenue from the privatization of the Pennsylvania liquor stores and lottery to fill in the gaps for transportation and the $4.3 billion needed by 2016 for state employee pensions. He also suggests tying higher education funding to performance-based measures. In regards to sell the State-owned and run liquor stores, this has been proposed by many governors before Corbett, the last attempt being former Governor Ridge, all of which have not taken off the ground due to labor union opposition. On it’s face, it seems like a good idea on paper to fill in budget holes; however, to sell the liquor stores and put it into the private sector also means the loss of jobs and increases the roles on unemployment which Corbett proudly reports decreasing. Likewise, the lottery benefits older Pennsylvanians, and without those proceeds, programs through the Department of Aging will lose funding and could be cut. Aware that four percent of the state’s budget is delegated to state employees pensions, Corbett anticipates that figure to double in five years, yet he has no specific plans to cover the expenses. Similar to the Bush tax cuts from ten years ago, selling the liquor stores and the lottery are only band-aids covering up a gaping hole of an even bigger problem. The impact of the fiscal cliff is unknown and at this moment in the hands of a five-person committee in Washington D.C. What happens with the budget in Pennsylvania is in Corbett’s hands and his team of agency heads who need to make decisions so that this state does not face its own fiscal cliff down the road. If anything, Corbett should look to Washington as an example of what not to do and come up with workable long-term goals instead of only considering the short-term solution.