Pennsylvania is the 27th freest state in America according to the Fraser Institute's annual Economic Freedom of North America report, which is hardly news to be celebrating.
States were ranked based on their size of government, level of taxation and labor market restrictions. Texas and South Dakota topped the US list, while Maine ranked last.
Why is economic freedom important? Higher levels of economic freedom directly correspond with more job opportunities and a higher standard of living.
According to the study, the most-free states averaged $55,000 per-capita in 2012 gross domestic product compared to roughly $48,000 for the least-free states. In other words, more economic freedom translated to a $7,000 boost in income per person.
When you consider the entire continent, Pennsylvania ties for the 30th freest state or province. Texas is the only US state to make the top five (the rest are Canadian provinces). Over the past decade, economic freedom has declined in both the United States and Canada, but the decline has been more gradual in Canada.
If Governor-elect Wolf and the new state legislature truly seek a fresh start for the commonwealth, they must take steps to restore economic freedom.
The war on coal will be a catastrophe for consumers, according to a new analysis of energy prices under new U.S. Environmental Protection Agency (EPA) regulations.
According to an Energy Ventures Analysis report, combined annual gas and electricity bills in Pennsylvania will increase by more than $1,000, or 46 percent by 2020 compared to 2012. Industrial power rates alone will increase by 62 percent.
The November report—"Energy Market Impacts of Recent Federal Regulations on the Electric Power Sector"—says that Pennsylvania is among five states that "would bear the greatest increases in annual residential power bills." The others are Texas, Mississippi, Maryland and Rhode Island.
Commissioned by Peabody Energy, a St. Louis-based coal company, the report calculates state-by-state effects of a number of EPA regulations, including the Clean Power Plan to reduce carbon dioxide emissions.
Nationally, gas and electricity costs for all customers will increase by $284 billion, or 60 percent, says Energy Ventures.
The increase will result "in large part due to an almost 135 percent increase in the wholesale price of natural gas" as EPA regulations force coal out of use and drive up the demand for gas, says the report.
Numerous business groups and politicians are objecting to the Clean Power Plan, including Pennsylvania’s Democratic senator, Bob Casey, who says that the proposed rule for CO2 emissions, "imposes a disproportionate and unfair burden on Pennsylvania." And the Supreme Court recently announced it will review the regulations in the spring.
Energy Ventures also takes into account the economic effect of rules recently implemented to regulate ozone and particulate matter, the interstate transport of air pollution, mercury, and haze in public parks.
"Our analysis is the first to fully examine the combined economic impacts of the EPA's long list of proposed and finalized regulations on the electric power industry," says Seth Schwartz, Energy Ventures president. The Clean Power Plan is based on flawed assumptions, he says.
From skyrocketing energy bills to killing green jobs to raising manufacturers' cost, the EPA’s actions are harming all Pennsylvanians.
Last week two Pennsylvania Utility Commission (PUC) administrative law judges recommended against legalizing the popular transportation service Uber in Allegheny County. The reason? The company, "is not committed to operating safely and legally."
Why do they claim Uber is putting public safety at risk? The company refused to provide numbers on how many trips it provided while under a July cease-and-desist order.
It's no surprise ride-sharing companies like Uber and Lyft are in a tussle with the state bureaucracy. Entrenched special interests, in this case taxicab companies, regularly use government to exclude new competitors. Think about state Certificate of Need laws that require doctors to seek government permission to purchase a new MRI scanner. Or professional licensing laws that require hair braiders to accrue 300 hours of training.
In this case, it's clear the opposition consists mainly of Uber's competitors. Support for ride-share companies is bipartisan. Both Governor Tom Corbett and Pittsburgh Mayor Bill Peduto have expressed their support for ride-sharing companies.
The media agrees the PUC’s position is unreasonable. A Pittsburgh Post-Gazette editorial describes Uber as "a highly innovative ride-share service that people in the Pittsburgh area are clamoring for after years of shabby and sometimes non-existent taxi service."
It’s time for the PUC to stop obstructing consumers' wishes and let ride-sharing flourish. Given the PUC's outdated regulations, there are several pieces of legislation to change the law to let ride-sharing companies like Uber, Lyft and others continue to meet the needs of consumers.
Lawmakers across the country have promoted specific, targeted tax breaks that encourage businesses to invest in their state. According to a recent study, these incentive programs are ineffective at promoting widespread economic benefits, despite being advantageous for certain firms and industries.
The study, published by The American Legislative Exchange Council (ALEC), examines "the use of public policy to benefit a specific industry, firm, or individual, as opposed to setting broad and generally applicable rules and policies that apply to society as a whole." These include targeted tax breaks or cash subsidies for select firms, as well as preferential tax treatment for firms located in a given geographic area.
ALEC finds that while this type of tax favoritism is not illegal, these programs stunt a state’s potential growth. Tax carve outs, while helping ease the tax burden for select businesses, create an uneven playing field on the whole.
When select businesses are exempt from the standard tax rate, the tax base decreases. ALEC notes that "with a smaller revenue base, states must continually raise tax rates to get the desired amount of revenue." Overall, this results in most businesses paying higher taxes, as they are forced to subsidize the lower tax burden of firms receiving preferential treatment.
posted by EMMA CRISCI | 05:00 PM | Comments
A recent Mercatus Center study provides new evidence that higher state taxes correlate with reduced state economic growth.
Pavel A. Yakovlev, a professor at Duquesne University in Pittsburgh and member of the Commonwealth Foundation Council of Scholars, found higher taxes lead to reduced gross state product (GSP), reduced per-capita income, fewer new businesses, and less immigration.
A one percent average tax rate increase correlates with a 1.9 percent decrease in the GSP growth rate. When states have high taxes and more spending, they experience slower economic growth. This is no secret in Pennsylvania. As the Commonwealth’s taxing and spending increased from 1970 to 2012, economic growth lagged behind the national average.
A one percent increase in a state’s average tax rate correlates with a .07 percent decrease in per capita income. When taxes increase, extra costs are incurred, leading to layoffs and pay cuts.
A one percent increase in personal income tax progressivity correlates with a 1.2 percent decrease in the number of new firms in the state. Firms are more likely to leave or choose not to locate in a state where success dictates a higher tax burden.
As personal state income tax rates increase, immigration rates decrease. Income taxes—or lack thereof—play a role in where Americans choose to live. Four of the nine states with no income tax (Florida, Nevada, Tennessee, Washington) have the highest population growth rates in the nation.
Yakovlev's study certainly comes as sobering news to high tax states across the country, including Pennsylvania. But the upside is a low-tax policy agenda can jump-start economic growth.
You're probably aware that Pennsylvania’s tax burden is among the most oppressive in the country. But the tax code is just the tip of the iceberg when it comes to the state’s stifling regulatory policy. Entrepreneurs and innovators are also weighed down by complex regulations and onerous licensure requirements.
According to a recent survey of thousands of firms, Pennsylvania is one of the least friendly states for small business—receiving a "D" grade for its overall business climate, a lower mark than each of its bordering neighbors. Only 5 states scored worse with an "F".
The survey estimates a whopping 43 percent of low-income occupations in Pennsylvania require a state license. Starting a new business in the Commonwealth has never been more challenging.
The hidden cost of regulatory compliance is staggering. Every afternoon spent toiling away with confusing paperwork is an afternoon that could be spent providing goods or services. Every trip to City Hall to renew a permit, every hour wasted on a government phone tree, every day spent waiting for the bureaucratic stamp of approval to arrive in the mailbox—each of these is a lost opportunity for sustainable, long-term economic growth.
And let’s not forget the cynical reason behind many regulations: to protect established firms from facing new competition. The unfortunate victims of these regulations are consumers, who suffer with higher prices and fewer choices.
Making life simpler for families and job creators may sound like a minor reform, but it would go a long way toward improving Pennsylvania’s economic outlook.
We have been warned: Pennsylvania is on a path to higher taxes, fewer jobs, more debt, and a lower standard of living if the state does not rein in government spending.
As we pointed out last November, Pennsylvania is facing a structural deficit, but it now looks like the state’s fiscal problems have compounded. The Independent Fiscal Office (IFO) recently released updated revenue projections, forecasting $1.3 billion less revenue for fiscal year 2013-14 and 2014-15.
The IFO’s projections mean a year-end deficit of more than $353 million for this fiscal year and a nearly $1.2 billion shortfall in next year's proposed budget. Acknowledging the reality of our fiscal problems, Governor Corbett has reportedly called for $1.2 billion in cuts from his budget proposal.
We agree with the governor’s call for fiscal responsibility. From ending corporate welfare to welfare reforms, our newest report, Blueprint for a Prosperous Pennsylvania, explains how lawmakers can make cuts that balance the books and improve the quality of life for all in the commonwealth.
Over the next two weeks, we will highlight those specific recommendations right here on PolicyBlog. Stay tuned!
In 2007, the Philadelphia Youth Network needed to cut 1,100 jobs for inner-city teens. Why? Because they couldn't afford to place as many teens in jobs under the higher minimum wage.
In the end, the organization was able to secure additional funding to maintain job placements, but the experience of Philadelphia Youth Network demonstrates how the minimum wage harms, not helps low-income workers.
Raising the minimum wage is ineffective for two reasons: Most low-income breadwinners do not make the minimum wage and minimum wage hikes actually shrink the number of available jobs.
First of all, the majority of Pennsylvania's minimum and near-minimum wage earners reside in households with an annual income above $40,000 a year. Only 10% of PA min wage earners are single parents who qualify for the federal EITC.
Secondly, minimum wage hikes reduce job opportunities. In 2006, a comprehensive review of more than 100 studies found, in the vast majority of cases, raising the minimum wage increases unemployment for low-wage workers. A 10% increase in a federal or state minimum wage actually decreased employment for black males by 6.5%, according to a 2011 study.
The bottom line is a higher minimum wage makes it harder for employers to offer opportunities to those who need it most.
So how do we help families struggling to make ends meet? A one-percentage point drop in the state's corporate tax rate would increase annual economic growth by 0.1 to 0.2%, leading to higher productivity, which means more jobs and higher wages. Pennsylvania can also scale back professional licensing to give low-wage earners the opportunity to increase their incomes through entrepreneurship.
Advocates for low-wage workers should be pursuing reforms that work, not policies that raise some workers wages at the expense of others.
Pennsylvania’s economy is beginning to recover from the 2007 recession, according to the latest numbers from the Bureau of Labor Statistics.
Since 2010, Pennsylvania has added 86,400 jobs, ranking 21st among states. In contrast, Pennsylvania added just 41,300 jobs from 2002-2010. This lack of job growth can be attributed to a variety of things including national trends; Pennsylvania's tax burden, which is the 10th highest in the nation; and the state's regulatory environment and growth in government spending—issues which lawmakers need to tackle.
While Pennsylvania employment has not returned to its prerecession peak, the state is slowly making progress. Claims of Pennsylvania ranking near the bottom in job creation during the past few years are widespread but misleading. In fact, the state has ranked poorly in job growth for decades.
Policymakers in Harrisburg should consider reforms to encourage job growth. Here are just a few recommendations from our new report, Blueprint for a Prosperous Pennsylvania:
End Corporate Welfare and Lower the Tax Burden: Pennsylvania will spend approximately $1.6 billion on corporate welfare this fiscal year. Instead of handing out loans, tax credits, and special favors to privileged companies, policymakers should end these programs and use the savings to cut Pennsylvania’s corporate tax rate, which is the second highest in the world.
Enact Welfare Reform: Pennsylvania's welfare budget continues to grow at an unsustainable rate. To prevent burdening Pennsylvanians with even higher taxes, policymakers should crackdown on the fraud and waste inherent in welfare programs, and demand flexibility from the federal government to restructure the welfare system’s incentives, which only hurt those trying to escape poverty.
Enact Spending Limits: In order to put Pennsylvania on a sustainable path, lawmakers should adopt fiscal restraints, such as spending limits for core functions of government. The limits would control the growth of government spending by tying increases to inflation and population growth. Had state spending limits been enacted in 2000, taxpayers could have seen savings of $4,000 per family of four.
Pennsylvanians are losing economic freedom according to the Fraser Institute’s annual report, Economic Freedom of North America 2013. The commonwealth is slowly losing ground ranking 33rd in 2009 and dropping to 40th in the latest study.
The index measures the limitations on economic freedom imposed by all levels of government in the 50 U.S. states and 10 Canadian provinces under three broad categories. Pennsylvania performs poorly in each category:
- Size of government: 48th
- Takings and discriminatory wealth redistribution: 34th
- Labor market freedom: 24th
There are several reasons for Pennsylvania’s abysmal performance. Chief among them is Pennsylvania's growing debt and spending, which has created $47 billion in unfunded pension debt and an estimated $1.2 to $1.4 billion budget deficit.
If policymakers want to improve the lives of Pennsylvanians, focus should be on increasing economic freedom and opportunity by enacting pension reform, slowing the growth of overall spending and reducing the size of government.
For more on how to accomplish these goals, check out our newest report: Blueprint for a Prosperous Pennsylvania.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.