Officials at the Commonwealth Foundation, Pennsylvania’s free-market think tank, aren’t fans of Gov. Josh Shapiro’s $51.5 billion 2025 budget.
During a recent press call, they lambasted the governor for proposing a spending hike of $3.5 billion — 8 percent more than last year — for the general fund, while raiding the state’s Rainy Day Fund and savings fund to plug a $5 billion budget deficit.
Not that Shapiro’s plan would leave taxpayers untouched.
He proposed new taxes on skill games — the approximately 70,000 slot-machine-style gambling machines in bars and clubs across the state. And in what many political observers believe is a longshot at best, Shapiro’s plan to pay for his spending includes both legalizing and taxing recreational marijuana.
Shapiro also wants to change how corporate taxes are calculated, lowering the rate of the state’s corporate net income tax rate, but requiring Pennsylvania businesses to combine their profits from all of their subsidiaries, including ones that operate outside of the state, to determine taxable income. Republicans have long objected to that approach, which would be a net tax increase for many employers.
Commonwealth Chief Policy Officer Nathan Benefield said Shapiro’s proposals are just “showmanship.”
According to Benefield, the outcome of Shapiro’s approach would require a $1,900 tax increase for a family of four “in the near future.” Also, with its savings depleted, Pennsylvania would see its credit rating drop, increasing its cost of borrowing.
State Sen. Doug Mastriano (R-Adams) introduced a bill for a state Department of Government Efficiency (DOGE), similar to the federal DOGE ushered in by President Trump. The Pennsylvania DOGE would be able to audit every agency.
DVJournal asked Benefield whether a DOGE for Pennsylvania’s state government is a good idea.
“Yes. That is absolutely something that would benefit the state and get a better handle on where the money is going,” he said.
Benefield noted Shapiro wants to spend nearly $4.8 billion more while revenue growth is less than $1 billion. The biggest increase—almost $2 billion—is in human services, including Medicaid, said Benefield.
There’s another $800 million in state support for public schools.
Shapiro also proposed a nearly $300 million bailout for SEPTA. Benefield said that takes money from poorer, rural residents who drive to benefit wealthier suburban residents.
Shapiro’s budget includes $1.6 billion from the Rainy-Day Fund, which is by law supposed to be used only for emergencies or during recessions.
Shapiro also calls for a slight reduction in the corporate tax rate but includes a new “combined reporting” requirement of all revenue wherever those companies operate, which Benefield said would increase their regulatory burden.
When Shapiro ran for governor, he campaigned on a 4 percent tax on corporate income by 2025, which stands at 8 percent. He wants to reduce it to 7.24 in 2026 with this budget, said Benefield.
Shapiro has also proposed an energy tax, PACER, similar to the Regional Greenhouse Gas Initiative (RGGI), “which he is still pursuing.” PACER would be a $500 million tax “on the backs of energy,” said Benefield, a cost which utilities would pass on to residents and businesses. Indeed, electricity rates are already rising in anticipation, he said.
Benefield said Shapiro’s budget estimates more revenue than is likely. While there is a significant increase in education and human services spending this year, there is almost no increase for those areas in the governor’s charts for the next five years, “which is a pretty ridiculous assumption,” said Benefield.
Shapiro’s budget would “create a $27 billion hole over the next five years,” Benefield said.
Benefield said Shapiro does not include educational funding that “follows kids” or addresses the unaffordable Medicaid costs.
He increased support by $824 million in new spending for public schools, bringing the total to $18 billion. That has increased by more than $4 billion in the last four years. However, students’ performance has declined, Benefield said. While the state is spending more on public schools, there’s been a 4 percent decline in student enrollment in the last decade and a 3 percent decline in test scores, he noted.
“We have more teachers and fewer students,” said Benefield. “There’s a student shortage in public schools.” School districts “have grown their reserves by almost 70 percent in the last decade,” while school boards continue to increase real estate taxes.
“The biggest challenge for lawmakers is how to make Pennsylvania more competitive as a state,” he said.
Pennsylvania lost 11,500 people in 2024, 34,823 in 2023, and 39,957 in 2022. “We’ve been losing population to other states. Residents are migrating from states with high taxes [and] high regulatory burdens to states with lower taxes and lower regulatory burdens.”
