Taxation

Recent Issues

A Christmas Wish List for Pennsylvania


“No more lives torn apart, and wars would never start, and time would heal all hearts.” You might recognize those words from the ubiquitous-around-the-holidays song, “Grown-Up Christmas List.” Grown up? Sure. Likely to happen? Not on this planet. Here is a Christmas wish list that can come true and would make Pennsylvania a place where everyone can thrive.

Pa. Population Drops for First Time in 31 Years


Moving out of Pennsylvania

For the first time since 1985, Pennsylvania’s total population declined last year, falling by more than 7,600, according to new data from the Census Bureau.

State Spending to Blame for Low Economic Opportunity in Pa.


When it comes to controlling spending, Pennsylvania ranks a disappointing 30th among states, according to the Economic Freedom of North America 2016 report, released by the Fraser Institute.


Recent Blog Posts

Budget Solution of the Week: Reduce Special Interest Spending

In our budget solutions blog series, we’ve covered the benefits of a government efficiency review, the need to modernize the commonwealth’s corrections system, and the importance of school choice. This week, we shift attention to special interest spending.

In Embracing Innovation in State Government, we recommend reducing spending on corporate welfare and in funds outside the General Fund Budget. Combined, these programs cost more than $2.6 billion.

If lawmakers reduced this spending by half—through program elimination or structural reforms—it would save approximately $1.3 billion. This savings could then be used to close a projected $1.7 billion shortfall in the 2017-18 budget.

All the corporate welfare programs and funds identified above deserve a thorough review, but a few stand out either for their extravagance or futility. Pennsylvania’s Film Tax Credit falls into the latter category. The Independent Fiscal Office analyzed the tax credit in 2013 and found most of the production-related wages went to nonresidents. And the return on investment was just 14 cents for every dollar in tax credits.

The credit is little more than an ineffective handout to the wealthy. According to a recent investigation by PublicSource, film production companies have sold off 99 percent of all credits redeemed. Effectively, the credit transfers wealth from taxpayers to corporations like Apple, Comcast, and Exelon.

Pennsylvania First is another corporate welfare program with a record of failure. In 2013, the Department of Community and Economic Development gave a Lehigh Valley Kraft plant almost $340,000 in subsidies to expand its operations. The plant eventually closed its doors late last year. After the announcement, the state vowed to recoup the subsidies—a move that could have been avoided had the state not taken on the role of an economic development agency.

In addition to corporate welfare, Harrisburg funds a collection of programs best described as nonessential. The most prominent example is the Keystone Recreation, Park, and Conservation Fund. Its past projects include pool feasibility studies, golf course acquisitions, and sports complex rehabilitations. Funding these types of projects while the state taxes businesses out of existence is indefensible.

For reformers looking to redesign government, eliminating ineffective and nonessential government programs would be a great place to start. Reducing special interest spending would shrink the budget deficit in the short-term and allow time for larger, long-term reforms to take effect.

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posted by Bob Dick | 10:43 AM

The Inquirer's Problematic Budget Prescriptions

A Philadelphia Inquirer editorial urges optimism about the forthcoming state budget debate. It’s certainly well-warranted. Gov. Wolf and legislative leaders have repeatedly expressed interest in redesigning state government to avoid broad-based tax increases. This is a welcomed departure from past proposals to enact large tax hikes on working Pennsylvanians.

However, the governor still won’t completely rule out tax hikes. He’s likely to propose an energy tax to the delight of the Inquirer’s editorial board, which supports the tax as a way to make natural gas companies pay their “fair share.” This political slogan ignores all of the taxes natural gas companies already pay, including an impact fee, which effectively operates as a 6.9% severance tax.

The board also criticizes the tax relief extended to businesses, asserting this policy failed to stimulate job growth. Sure, businesses did see some relief through the elimination of the capital stock and franchise tax, but Pennsylvania’s overall tax burden ranks 15th highest in the nation. Weak job growth should be seen in light of the commonwealth’s broader tax and regulatory climate. The implication here is that a lower tax burden doesn't grow the economy. The evidence suggests just the opposite.

The editorial's assault on the state's tax structure continues:

Instead, the [tax] cuts lowered the public's quality of life by reducing revenue needed to educate children, fix roads, and provide other services. Business tax cuts account for about half the state's $600 million deficit.

These two sentences are plagued with problems. First, as CF has demonstrated in the past, more education spending does not necessarily lead to improved academic achievement. As a matter of fact, policymakers could improve the educational system while spending less on education if they embraced school choice.

Secondly, the state already has a dedicated source of funding to fix roads. That’s why the state’s gas tax jumped 8 cents to kick off the new year. If more money is needed for transportation, why not embrace public-private partnerships or repeal the prevailing wage mandate?

And third, placing blame for the deficit on tax cuts implies state government hasn’t taken enough out of the pockets of taxpayers. This flatly ignores the state’s overspending problem.

State spending has risen 46 of the last 47 years—climbing by $4,010 per person over that time. Had the state kept spending increases in line with inflation and population since 2000, it would have produced a budget surplus during this fiscal year. With spending increases possible each year, is it really reasonable to say Pennsylvania has a revenue problem?

Finally, the editorial suggests raising the minimum wage to improve residents’ quality of life and make Pennsylvania a destination state. But mandated wage hikes haven’t stop residents from fleeing other states. In fact, of the ten states that saw the biggest declines in state-to-state migration, nine had minimum wages exceeding the federal level. The only exception was Pennsylvania.

In contrast, of the ten states experiencing the largest increases in state-to-state migration, only half mandated wages above the federal minimum. The editorial board correctly identifies the importance of higher wages for Pennsylvania, but their policy prescription will ultimately undermine employment opportunities for the people who need it most.

Thankfully, Pennsylvania's dismal economic rankings are reversible. But turning the tide requires rejecting attempts to solve every problem with more government spending. What's the alternative? Robust economic growth driven by entrepreneurs and consumers pursuing their happiness.

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posted by Bob Dick | 04:01 PM

Budget Solution of the Week: Government Efficiency Review

With the budget deficit casting a shadow over the current fiscal year, and deficits projected for at least the next five years, policymakers are acting to stem the tide of red ink.

The Wolf administration has adopted a hiring freeze—an idea CF proposed back in October. And just this week, the administration announced the consolidation of the state’s technology and human resource functions—a move aimed at achieving savings for taxpayers.

The governor has also ruled out broad-based tax increases this upcoming fiscal year, which were the central components of his two prior budget proposals. Instead, he—and legislative leaders—are putting greater emphasis on reducing the costs of a bloated state government. Taxpayers should be optimistic about these developments, which all point to a culture shift in Harrisburg. Instead of seeing large tax increases as a viable solution, the focus has shifted to the spending side of the ledger.

Beyond the promising cost-savings steps taken thus far, more must be done. State government needs a complete overhaul. In our latest policy brief, Embracing Innovation in State Government, CF outlines solutions to reduce government spending and improve the institutions and programs now failing too many Pennsylvanians.

Over the next month, we will highlight at least one budget solution per week. First up, a government efficiency review.

This review would identify ways government can make the best use of each tax dollar. The State of Louisiana conducted such a review in 2013 with the help of Alvarez & Marsal (A&M)—a business management firm specializing in performance improvement. The firm made 72 recommendations, which were estimated to save or raise $2.7 billion over five years.

According to state's final report on the recommendations, “efficiency reviews have generally identified savings of five to six percent of the general fund budget” in other states. For Pennsylvania, this would mean $1.5-$1.9 billion in savings. Such a significant sum would go a long way toward helping policymakers reduce government spending.

An efficiency review is just one of many ideas that can lead to savings for taxpayers. As we move closer to the governor’s budget address, we’ll be exploring other ideas to balance the budget without taking more out of the pockets of working people. Be sure to check back next week for the 2nd blog in our series.

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posted by Bob Dick | 09:40 AM