IFO: federal tax breaks might mean good news for Pa.’s bottom line

After a year marked by lower-than expected income and intractable budget problems, Pennsylvania’s finances appear to be on an upswing.

An updated revenue estimate from the state Independent Fiscal Office shows stable revenue collections, which could get even better next year thanks in part to the recent federal tax overhaul.

The federal changes have broad implications for both corporate and personal taxes.

The IFO reports that the upshot is Pennsylvanians will wind up with additional disposable income next year–up to $7.7 billion more in all.

Director Matthew Knittel estimated that will translate to between $60 and $80 million in additional sales tax revenue.

But he noted, the forecast all depends on what exactly corporations decide to do with their tax cuts. That makes all the numbers fairly shaky.

“What we think will happen is that much of it, or even most of it, will be used either to buy higher dividends or buy back shares, which will of course boost the stock market and should raise capital gains,” he said.

In these situations, money doesn’t necessarily go straight to employees.

“Well it should still flow through to an ultimate consumer,” Knittel said. “[But] the distribution may be different, as opposed to a wage earner, because most of the capital gains tend to go to the higher end of the income spectrum.”

The final revenue estimate for this year’s General Fund is about $35 million higher than the one the IFO released in June–not a huge difference, but significantly higher than last year’s numbers.

Knittel largely attributes that to strong revenues from a gaming expansion.

Not all the money has come in yet, but the office is projecting $85 million more than expected.