Pennsylvania Gov. Ed Rendell recently made some headway in his year-long quest to raise taxes when he struck a deal with the state house to pile $1 billion more onto the backs of Commonwealth citizens. The deal calls for an increase in the state personal income tax from 2.8 percent to 3.25 percent beginning January 1, 2004 (it would drop to 3.1 percent in July).
Although the governor is selling his plan as an essential ingredient in his effort to close the state’s budget gap, it is really just another tax-and-spend bromide for the benefit of special interests in Harrisburg. Not only does Rendell plan to raise education spending by $450 million and reverse the modest spending cuts passed in March, he also plans to nearly triple spending on grants for pet projects in legislators’ districts from $70 million to $200 million. It’s a practice known as “walking around money.”
Rendell’s success in peeling off opposing votes in the state house via pork-barrel spending reveals that there is nothing new in his so-called “Plan for a New Pennsylvania.” Rendell is relying on the oldest form of political arm-twisting — taxpayer-financed payoffs to political allies — to help him grease the skids for big government.
The most troubling aspect of this entire debate is that Pennsylvania does not have a revenue problem; it has a spending problem. From 1990 to 2001, inflation-adjusted spending in the state increased by nearly 20 percent per person. Yet average annual tax growth in Pennsylvania was 3.26 percent during the 1990s, while average annual income growth was only 1.96 percent. This means that in Pennsylvania tax rates grew 66.3 percent faster than income did during the last decade. Only nine states had a higher rate.
Rendell and his supporters in the state legislature are only harming their own state by passing misguided tax increases. An economic analysis recently released by the Commonwealth Foundation found that increasing the personal income tax from 2.8 percent to 3.1 percent, as Rendell and the state house have agreed to do, would destroy 35,892 jobs in Pennsylvania. This 11 percent personal income-tax increase would also reduce investment, state personal income, and disposable income by $77.38 million, $298 million, and $1.46 billion respectively.
Rendell’s original, more ambitious tax hike failed to gain momentum because of strong taxpayer opposition. Instead of taking the anti-tax message to heart, Rendell went back to his tax-hike laboratory in the state house where he unleashed his monstrous scheme.
Rather than going along with Rendell’s latest fiscal “experiment,” legislators should cut the size and scope of government programs that grew out of control during the last decade. The fact is this: If Rendell’s plan is eventually signed into law, Pennsylvania would be among the few states in the nation to be adding new programs this year. Indeed, most states now experiencing a hangover from the big-spending 1990s have either frozen spending or cut programs.
Reams of economic research, most prominently that of Dr. Richard Vedder, have indicated that high taxes cause population and job losses, as well as lower incomes. If Pennsylvanians want to continue growing their state population at a rate nearly three-times slower than that of the U.S. as a whole, if they want to continue seeing their young, most-educated citizens move to other low-tax states, and if they would like to continue having lower per-capita incomes than the national average, then by all means they should cheer Rendell on in his economically destructive tax-hiking effort.
On the other hand, if they want a plan for a better future for Pennsylvania, they should stop this tax increase in its tracks and embark on aggressive tax reform that cuts the size of state government and reduces the tax burden on citizens.
— Paul J. Gessing is director of government affairs for the 350,000-member National Taxpayers Union. Write to him at 108 N. Alfred St., Alexandria, Va. 22314, or visit www.ntu.org.