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Pennsylvania tax revenues stronger than anticipated, $580 million above estimates

By Anthony Hennen

Pennsylvania’s tax receipts were strong for March 2022, with the Independent Fiscal Office revising its projections up by $580 million from its August estimate.

Sales taxes, personal income taxes, and corporate net income taxes drove the rise, indicating that the economy is recovering from pandemic-related slowdowns. The labor force participation rate and unemployment rate still have not returned to prepandemic levels, however, according to the Bureau of Labor and Statistics.

The Independent Fiscal Office’s estimate was closer than the Pennsylvania Department of Revenue’s figures. The Department of Revenue underestimated collections by $659 million. The General Fund collections have been strong through the fiscal year-to-date, totaling $34.1 billion, $2.7 billion more than the Department of Revenue anticipated.

The windfall is even greater than the remaining federal funds the state received from the American Rescue Plan Act; Republicans and Democrats remain at odds on what to do with the $1.7 billion of remaining federal money.

For comparison, Pennsylvania generates $4.5 billion from the state gas tax and motor license fees, and $2.7 billion of that covers roads and bridges. The stronger-than-anticipated tax revenues could shore up existing programs (as state Republicans have argued for federal ARPA funds) or be used for new spending programs (as state Democrats have argued).

It’s unclear how long extra tax revenues will continue. Consumption taxes, such as sales taxes and other General Fund tax revenues, could contract from rising inflation and as pent-up demand from the pandemic levels off.

As the Department of Revenue’s update notes, the lion’s share of the tax revenues came from sales tax, personal income tax, and corporate tax. Those increases of 8%, 6.5%, and 18.6%, respectively, are unlikely to be a long-term trend.

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