Summary: The Pennsylvania Department of Revenue recently released its monthly revenue report for the month of June, the final month of fiscal year (FY) 2023-24. The report can be analyzed to better understand Pennsylvania’s fiscal position in comparison to recent years.
________________________________________________________________________________________
Total general fund revenue
Total general fund revenue is comprised of two distinct parts—total tax revenue and total non-tax revenue. FY 2023-24 general fund collections equaled $45.47 billion. That’s 1.24 percent higher than the previous fiscal year when general fund collections totaled $44.92 billion.
General Fund Revenue
| Fiscal Year | Revenue ($, 000s) | % Change |
| 2018-19 | 34,857,878 | 0.84% |
| 2019-20 | 32,275,863 | -7.41% |
| 2020-21 | 40,392,018 | 25.15% |
| 2021-22 | 48,134,220 | 19.17% |
| 2022-23 | 44,917,148 | -6.68% |
| 2023-24 | 45,473,489 | 1.24% |
Although FY 2022-23’s general fund collections were down 6.68 percent from FY 2021-22, this decrease followed two years of sizeable increases. After the pandemic, FY 2020-21 and FY 2021-22 logged 25.15 and 19.17 percent increases in those years, respectively, ballooning total collections by close to $16 billion. This very large boost was associated with the massive infusion of federal dollars that were injected into the state through the American Rescue Plan (ARP) with the stated intent of softening the effects of the COVID lockdowns. Additionally, the deadline for tax collections was delayed at a similar time, which would also have contributed to the increased collection for FY 2020-21 (Policy Brief, Vol. 21, No. 28).
Total tax revenue, which comprised 96.5 percent of total general fund revenue in FY 2023-24, surged 23.94 percent from $31.6 billion in FY 2019-20 to $39.18 billion in FY 2020-21. However, since FY 2020-21, percentage increases have become progressively smaller. In FY 2023-24, tax revenue saw a scant 0.2 percent increase over the previous fiscal year ($43.78 billion vs. $43.86 billion).
Corporate net income
The three largest components of the commonwealth’s total general fund tax revenue are corporate net income, sales and use and personal income taxes. During the pandemic, all these components saw decreases to various degrees from FY 2018-19 to FY 2019-20. The corporate net income tax decrease was the largest of the three with collections falling by 16.8 percent, while the personal income tax collections fell 8.9 percent and the sales and use tax was just 2.5 percent lower. Keep in mind that the declines in the corporate net income and personal income taxes were due, in some part, to the shifting of deadlines from April to July 2020, thus affecting the reporting results for FY 2019-20 and FY 2020-21.
All three categories bounced back from the pandemic level collections. From pre-pandemic FY 2018-19 through FY 2023-24, corporate net income tax collections increased by 66.3 percent while the personal income tax rose by 26.7 percent and the sales-and use-tax collections climbed by 28.4 percent. The rate of inflation for all goods in the Northeast from 2019 through 2023, as measured by the Consumer Price Index, was 16.5 percent.
The corporate net income tax rate (CNIT) has been lowered as discussed in Policy Brief Vol. 22, No. 31. “Act 53 of 2022 cuts [the CNIT] rate by five percentage points over the course of nine years, reducing the rate from 9.99 to 4.99 percent.” Based on this information, it was anticipated that revenue losses would occur because of the progressive lowering of the tax rate. In 2023 the first decrease of one percentage point, from 9.99 to 8.99 percent, went into effect and, as anticipated, FY 2023-24 saw an 8 percent reduction in CNIT revenue collections from the previous fiscal year.
However, as noted in the above cited Brief, Pennsylvania had at the time, the second highest CNIT in the country behind New Jersey’s 11.5 percent. While there was to be an expected drop in collections, the longer-term impacts need to be remembered. “(T)he forecast reduction of CNIT revenue might be offset to some extent by increases in personal income taxes and sales taxes that result from corporations starting or expanding operations inside Pennsylvania. If companies choose to expand operations into Pennsylvania by employing more workers or selling more products in Pennsylvania due to the CNIT cut, sales tax and personal income tax revenue would increase.”
Sales and use tax
Conversely, the other two parts of the total tax revenue did not exhibit the same decrease in collections in FY 2023-24. After increasing 18.65 percent and 8.41 percent in FY 2020-21 and FY 2021-22, respectively, revenues for sales and use taxes seemed to stagnate, only increasing 0.79 percent in FY 2022-23. Sales-and use-tax collections managed a small 1.65 percent increase in FY 2023-24, bringing in $14.26 billion.
Personal income tax
Like the other two sources of tax revenue, the drop in the personal income tax collections due to the pandemic covering the latter few months of FY 2019-20 was followed by two years of increased collections in FY 2020-21 and FY 2021-22 when tax collections expanded 26.87 and 11.31 percent, respectively, to $18.13 billion. Although the following fiscal year of 2022-23 registered a decline of 2.75 percent, the most recent data from FY 2023-24 show a 1.3 percent increase compared to FY 2022-23 with collections rising to $17.86 billion.
Non-tax revenue
Non-tax general fund revenue collected by the state is comprised of several sources including liquor store profits, licenses and fees, fines, penalties and interest and miscellaneous. While the non-tax revenue seems to follow the same general trend as the tax revenue sources, the non-tax revenue exhibits far more dramatic percentage shifts.
This is at least partially due to the receipt of federal relief money. In FY 2018-19, total non-tax revenue was $801.6 million before dropping to $664.9 million in pandemic FY 2019-20. However, because of federal relief money it ratcheted up to $1.2 billion in FY 2020-21 and then further to $4.65 billion in FY 2021-22 before sliding to $1.14 billion in FY 2022-23 and settling in at $1.61 billion in FY 2023-24.
Conclusion
As pointed out in Policy Brief Vol. 22, No. 44, the inflationary economy associated with the government’s response to the pandemic “has benefitted the commonwealth’s general fund tax coffers as the prices of goods and services along with wages have risen at rates not seen in decades.” But this is a poor substitute for sound government policy to stimulate economic growth.
Past Policy Briefs have pointed out on numerous occasions that major reforms are needed to make Pennsylvania more economically competitive compared to other states. These include eliminating the right of public workers to strike and moving toward making Pennsylvania a Right-to-Work state so it can compete with other Right-to-Work states in terms of economic growth.
By taking steps as it did in 2022 by lowering the CNIT, Pennsylvania has taken as small step toward being economically competitive with faster growing states. But it is a very small step. Much more needs to be done.
