Why Lawmakers Don't (And Shouldn't) Raise Taxes
AUGUST 26, 2010 | by NATHAN BENEFIELD
Terry Madonna and Michael Young have a new column asking why Pennsylvania lawmakers are so loath to raise taxes:
This response differs dramatically from past practice. Throughout most of the 20th century, despite partisan differences, governors and legislatures raised taxes to balance state budgets during recessions. In just the last 25 years, for example, state leaders raised the income tax three times - 1983, 1991, and 2003 - to meet budget shortfalls. Indeed, the pattern of raising taxes to combat recessionary deficits was almost Pavlovian in its predictability.
But not this year! Despite perhaps the worst revenue shortfall in Pennsylvania's history, a tax increase is simply not in the cards.
The obvious question: What is different now?
Let me offer some quick answers to this question.
For starters, Pennsylvania's state and local tax burden is significantly higher today than it was in prior years. And while the 1983 income tax raise resulted in a lower rate a few years later, the 1991 and 2003 tax hikes have resulted in a PIT rate that is 46% higher than in 1990.
| Pennsylvania Tax Rates and Burdens Before Tax Hikes | |||
| Year | PIT Rate | State and Local Tax Burden | Tax Burden Rank |
| 1982 | 2.20% | 9.5% | 16 |
| 1990 | 2.10% | 9.8% | 24 |
| 2002 | 2.80% | 9.6% | 16 |
| 2009 | 3.07% | 10.2% | 11 |
| Sources: Tax Foundation, PA Department of Revenue | |||
Maybe lawmakers realize you can't just keep raising taxes indefinitely.
A second hypothesis is that lawmakers have seen the effect of these higher taxes. That is, Pennsylvania's growing tax burden resulted in stagnant economic growth. From 1991 to 2009, Pennsylvania ranks 42nd in job growth, 48th in personal income growth, and 47th in population growth among the 50 states.
A final possibility is that lawmakers recognize that our budget deficit is caused not by taxing too little, but by overspending. As Matt Mitchell of the Mercatus Center points out in a recent policy report, spending restraint by states is an untested policy. In fact, nearly every state with a budget deficit would have a surplus if they had merely grown spending to the rate of inflation plus population growth.
This is true in Pennsylvania -- even going back just to the start of the Rendell Administration. By growing the General Fund Budget from $20 billion to $28 billion, Gov. Rendell produced a 40% increase in spending, almost double the rate of inflation.
Related : Budget & Spending, Pennsylvania State Budget, Taxation
More on Philadelphia's "Blogger Tax"
AUGUST 25, 2010 | by NATHAN BENEFIELD
After we noted earlier this week Philadelphia's forcing of any blogger with blogging income to pay the city's business privilege license ($50/year or $300 for lifetime), several others have weighed in on the matter.
Reason Foundation notes this as another example of the misuse of occupation licensing:
Business and occupational licensing regulations are just another example of such coercive molestation. If governments truly want to help improve the economy, they can best do it by simply removing these barriers to work and entrepreneurship and allowing greater economic liberty to naturally lead to greater economic prosperity.
Jason Stverak of the Franklin Center posits that this fee may discourage citizen-reporters:
People tend to forget that bloggers are not all teenagers grumbling about their bad dates or conspiracy theorists railing against the government. The blogosphere is no longer just for ranters and ideologues. Increasingly, straight-shooting journalists cut from newsrooms are becoming online citizen journalists or forming non-profit online journalism organizations. These seasoned journalists-turned-bloggers will quit blogging if they are taxed on their meager profits.
Alex Charyna writes that this is just another money-grab from the city:
I think the city has a sound position. It’s not about free speech or liberty or whatever. It’s about money. Some blogs run as a business (very little, but some income), and the city isn’t business friendly. 50 years of a Democrat run city has led them to scrape the bottom of the bottom of the barrel for any possible source of income. That’s the message that needs to sent.
Business people (of all kinds) have no friends in City Hall.
Freedomworks echoes this sentiment, noting the rampant corruption and overspending in the City of Brotherly Love:
Philadelphia faces a budget crisis due to massive overspending by lawmakers on wasteful projects. In order to make up for their $179 million shortfall, Philadelphia’s government has proposed everything from steep soda taxes to property tax increases.
And Paul Jacob fears the business privilege license could indeed be used as a tool against free speech:
Philadelphia’s pursuit of imaginary scofflaws may amount to just an obtuse lunge for hitherto unextracted funds. But the new protocol is also a weapon that could be selectively deployed, now or later, to harass bloggers who publish inconvenient words. Wouldn’t be the first time in our history that the power to tax has been turned to such ends.
Related : Professional Licensing
The A-Team View of Taxes
AUGUST 23, 2010 | by NATHAN BENEFIELD
As a kid growing up, I used to love watching the A-Team every week. Each week the A-Team would find someone in trouble, usually due to a violent gang of bullies, but the A-Team would be able to out-think and out-fight the bad guys.
Amazingly, though the A-Team fights typically included hundreds of rounds of machine gun fire, a few explosions, a good fist-fight (with someone being thrown through a table or a plate glass window), and at least one car being flipped over during a chase, no one was ever killed or seriously wounded (except in one episode where Murdock got shot, and Mr. T had to give him a blood transfusion).
As ridiculous as this premise seems, it is exactly the view Pennsylvania Governor Ed Rendell holds in regards to taxes. No matter how much the state takes from residents, no one will be harmed.
Lately, he's applied this thinking to his proposed increase in motorists fees and tax on big oil companies - but he's also referred to the ease with which taxpayers could eat his income tax increase, or any of his dozens of tax proposals.
However, you can't take more money out of the pockets of Pennsylvanians and expect there to be no effect. People may not "lose their homes," but they will reduce spending elsewhere, with real economic consequences.
Related : Transportation, Taxation
How to Write Leading Poll Questions
AUGUST 20, 2010 | by NATHAN BENEFIELD
Gov. Rendell continues to push for higher taxes and fees for transportation, this time by commissioning a poll -- paid for with campaign funds (which are legally only to be used to influence an election) but released by the Governor's office -- showing voters love his plan.
After letting the administration know that "releasing a poll" requires you to release a poll, not just tell people you have one, Scott Detrow got the actual language used. This is a great case study of how to write leading poll questions.
The first leading question:
If you knew that an increase in spending on roads, bridges and highways could be paid for by closing tax loopholes on the oil companies operating in Pennsylvania - and that the oil companies would be forbidden by law from passing the tax increase on to motorists, would that make you.....support additional spending on the state's roads, bridges and highways?
Rendell says the results indicate that voters support his new oil companies profits tax. But the poll didn't ask about a new tax, only "closing tax loopholes." And it leads respondents by implying there will be no negative effect on them, even though few analysts believe the state can prevent an increase from being passed on at the pump, and it could be passed on in other ways.
The second leading question:
Pennsylvania vehicle fees have not been raised in over a decade. If you knew that an increase in spending on roads, bridges and highways could be paid for entirely by increasing fees on drivers licenses and car registration just by the rate of inflation, would that make you .... support additional spending on the state’s roads, bridges and highways?
Not quite as misleading as the first (which is why it received less support), but it certainly attempts to make the fee increases seem minimal. If the question had asked, "increasing fees on drivers licenses by 10%, car registration by 25%, and inspection stickers by 100%", it might yield a different result.
As I point out in a forthcoming commentary, Gov. Rendell could take the $600 million in new bonds for pet projects like the Specter Library and use that money for road and bridge repairs. What if, instead, he polled voters on their support of higher taxes for those pork projects?
For more on the transportation funding debate, check out our Transportation Special Session Survival Guide and our latest video update.
Related : Transportation
Happy Cost of Government Day 2010
AUGUST 19, 2010 | by KATRINA CURRIE
Today is Cost of Government Day, a date on your calendar you probably won't want to celebrate.
Americans for Tax Reform calculated the date Americans collectively have earned enough to pay for all government spending and regulations. This means the average person has to work 231 days, or 63% of the year, to pay his or her share of local, state, and federal spending and regulation.
Pennsylvania is below average. Workers in the Keystone state will have to wait until August 25 before we have enough to pay for the additional expenses of our local and state government.
- The state ranked 40th (1 being the least burdened) in the cost of government.
- In cumulative state tax increases from FY 2003-2010, the state ranked 14th, increasing taxes $1.3 billion, or $101.79 per capita.
In addition to enormous government spending, the report identified a surge in government employment as a key contributor to the cost of government. An additional 230,000 government jobs have been created since 2009, resulting in 24 million federal, state, and local government employees nationally.
August 19th is the latest Cost of Government Day on record. Two years ago it fell on July 16th. As the study points out, "We have lost an additional full month of our income to pay the cost of government in just the last two years."
Rendell's Pinocchio Moment on WAMs
AUGUST 19, 2010 | by ELIZABETH STELLE
During yesterday's press conference, Roxbury News reported Gov. Rendell saying, "Opportunity Grants are not WAMS." Really?
Forget the numerous failures of Opportunity Grant recipients, like the $750,000 awarded to Siemens Energy for a never-constructed fuel cell manufacturing plant.
Forget that the 2007 Auditor General's report examined $215 million in grants expected to create 300,000 jobs, but found only 170,000 were created -- less than 60% of the goal.
And forget that the audit also revealed a poor track record of assessing and collecting fines -- $49 million in fees for failure to meet requirements were waived.
Because the real purpose of the Opportunity Grant program is press release economics. Governor Rendell may prefer "discretionary grants" or "corporate welfare" to "WAMs," but they're all examples of elected officials using other people's money to take credit for "creating jobs," even if they never materialize.
Denying that the Opportunity Grants are WAMs won't change the more important fact -- they are a waste of taxpayer dollars.
Related : Budget & Spending, Pork Spending, Corporate Welfare
But I Thought All the Tax Cuts were "For the Rich" ...
AUGUST 12, 2010 | by NATHAN BENEFIELD
The Club for Growth highlights a Washington Post article on the expiration of the "Bush tax cuts" in 2011 (or, depending on your word choice, the "currently-scheduled tax increases"). The article estimates that, if the Bush tax cuts were extended, the federal government would collect $238 billion less in revenue.
Obama, however, proposes extending the current tax rates only on those making less than $250,000; this would reduce collections by an estimated $202 billion. Only raising tax rates on "the rich" generates $36 billion; in other words 85% of the Bush tax cuts went to those making under $250,000. Raising taxes on "the rich" would reduce the current budget deficit by only about 2%.
For the record, my blog title is misleading, I was pretending to be a typical pundit, not someone who actually knows something about tax policy.
For a list of the expiring tax rates, click here, and check out this calculator to determine your burden under the current rates, current low (tax cuts expire), or the Obama proposal.
Related : Taxation
Rendell and the Missing $30 Million
AUGUST 12, 2010 | by NATHAN BENEFIELD
Yesterday, Gov. Rendell told lawmakers that after Congress passed legislation to increase federal aid to states for Medicaid (FMAP) and to school districts - and also cut funding for food stamps in future years - the Pennsylvania state budget was $282 million out of balance. This number seemed a bit odd to me, giving the budget had included (against sound judgment) $850 million in FMAP money and got about $600 million.
I don't want to brag, but I'm pretty good at math. Good enough, at least, to know that this math problem doesn't quite work out:
$850 m
- 600 m
$282 m
The answer to my curiosity was answered by Scott Detrow, with a parenthetical comment (emphasis added)
Pennsylvania banked on $850 million in federal aid, but Congress only approved $600 million. That, plus an increase in state medicaid costs, creates the $282 million deficit.
In other words, one month into the fiscal year, Gov. Rendell is already spending $30 million more than was budgeted.
Gov. Rendell also outlined his plans for filling the $282 million gap, which includes a 1.9% "across-the-board" cut from discretionary spending, $50 less in the basic education subsidy, and $70 million from a yet-to-be enacted tax on natural gas.
In contrast, 30 House Republicans sent a letter to the Governor demanding the elimination of $100 million in pork-barrel programs often call WAMs. Many of these line items had been eliminated in 2009, but were thrown back in this year, without warning.
Related : Pennsylvania State Budget, Pork Spending
Corbett on Death Tax and Farmers
JULY 28, 2010 | by NATALIE ROGOL
Governor hopeful, Tom Corbett, has voiced support for phasing out the state's death tax. At a meeting organized by Farm Families for Tom Corbett and Pennsylvania Agricultural Republicans, Corbett cited the state death tax (inheritance tax) as one of the primary challenges to dairy farmers.
Pennsylvania is one of only eight states in the nation to still apply an inheritance tax, and in 2008, collected the highest percentage of state revenue (at 2.5%) of all states through the death tax. The death tax often hurts small, family owned businesses and farms. Last fall, the Pennsylvania Family Institute released a report outlining the costs the (primarily federal) death tax has on our state's economy.
Eliminating the death tax would present far more benefit to farmers than subsidies could achieve. Corbett seems to be following CF advice by supporting the phase out of the state death tax.
Related : Taxation
How Much will Your Tax Bill Increase in 2011?
JULY 23, 2010 | by NATHAN BENEFIELD
The Tax Foundation has a great new tool to calculate your federal tax burden in 2011 - comparing your tax bill if the 2001 & 2003 tax cuts ("Bush tax cuts") are extended, if the cuts expire, and if the taxes proposed in the Obama budget are enacted.
When the tax rates were reduced with 2001 and 2003 legislation, these cuts were set to expire after 2010. That is, taxes are scheduled to increase in January 2011.
Check out MyTaxBurden.org to see how the expiring cuts will effect you.
The Wall Street Journal also has an article today on the expiring tax cuts, with a chart showing the different rates and the percentage of filers affected.
Related : Taxation
