HARRISBURG - Now that all sides have agreed that a proposed hike in the state income tax is history, a big question mark hangs over the green-tiled Capitol dome:

What revenue sources can help plug a gaping billion-dollar budget hole?

Postpone corporate tax breaks? Tax natural gas reserves? Stick smokers with an extra dime a pack?

Therein lies the Gordian knot in a state budget that's overdue by five weeks now - finding a mix of revenue that will produce enough new cash and also be palatable to lawmakers, particularly Republicans, who are loath to raise taxes in a recession.

Gov. Rendell's now-dead plan to increase the income tax by 16 percent would have generated more than $1 billion. Many in Harrisburg believe that the remaining options amount to comparative scraps.

"It's like Thanksgiving dinner without the turkey. All we are left with are the vegetables," said Sharon Ward, director of the Pennsylvania Budget and Policy Center, a liberal-leaning think tank in Harrisburg.

Here are some of the ideas being discussed.

Tobacco taxes

Rendell is pushing for an additional dime-a-pack tax on cigarettes and for the state to, for the first time, stick a tax on cigars and smokeless tobacco. Combined, it could raise an additional $99 million annually, according to some estimates, although that could drop the longer the budget is delayed.

Pro: It's a classic "sin tax" paid only by those committing the sin.

Con: The law of diminishing returns: The more the tax, the fewer packs are sold and the less revenue brought in.

This might be the easiest new tax to enact as GOP leaders from both chambers acknowledged that even some staunch antitax members are open to the idea.

House Minority Leader Sam Smith last week characterized the possibility of the success of the tax more as a referendum on tobacco use than as a proven revenue generator.

"It's truly pennies on the dollar relative to the kind of money the governor is insisting on," said Smith (R., Jefferson).

Rainy Day Fund

The state's savings account built up as a hedge against economic hard times is flush with $750 million. Most agree that some of it has to be tapped. But the question is how much.

Pro: A somewhat easier lift than raising taxes. It is an existing pot of money dedicated just for this reason.

Con: Tapping a one-time revenue source means less money available for future "rainy days."

Rep. Kate Harper (R., Montgomery) maintains the budget can be balanced with such one-time revenue sources when combined with federal stimulus dollars.

"I don't really understand the governor," Harper said. "If we can balance the budget this year through modest cuts that don't affect education, why wouldn't we do that? And if we have to do something different next year, why wouldn't we do that?"

Tax on natural gas extraction

Rendell this year recommended imposing a tax on natural gas extracted from the Marcellus shale, a newly discovered formation that runs the length of Pennsylvania. Geologists estimate that it contains trillions of cubic feet of gas worth billions, but the industry is still mostly in the exploratory stage.

Pro: It could raise $107 million in the first year and $632 million by 2013.

Con: It could harm an industry in its infancy.

"And if we look at the Marcellus shale, or any industry for that matter, as ways to grow our revenue to plug a short-term budget problem, we're going to stunt the growth of this industry significantly, and really blow a once-in-a-generation opportunity," said Senate Appropriations Chairman Jake Corman (R., Centre).

Business tax changes

Rendell and his Democratic allies have floated two business tax options: closing the so-called "Delaware loophole" that allows corporations to move income out of Pennsylvania and avoid taxes here, and suspending the planned phaseout of the Capital Stock and Franchise Tax. Combined, the two ideas could net the state about $800 million, some estimate.

Pro: The moves could get the state close to the $1 billion it needs, but not immediately.

Con: They would hurt businesses and employers, and that could mean job losses.

Sen. Jay Costa of Allegheny County, the ranking Democrat on the Appropriations Committee, said the two business taxes should be part of the mix.

"That's a potential source of revenue and it's appropriate in this climate for the business community to participate in a solution," he said.

Also being floated are proposals to allow video poker in bars and other venues, with the money going to pay college tuition. Then there's an idea to allow the state's casinos to add table games alongside their slot machines.

Rep. Rick Taylor (D., Montgomery) said his constituents had grown tired of hearing about the budget impasse and all the potential options to solve it.

"They just want some resolution," Taylor said.

Contact staff writer Mario F. Cattabiani at 717-787-5990 or mcattabiani@phillynews.com.
Inquirer staff writer Thomas Fitzgerald contributed to this article.