Last Saturday Pennsylvanians passed an important milestone: Tax Freedom Day. This is the day Pennsylvanians earn enough dollars to pay off their federal, state and local tax bills for 2015.
Pennsylvania's celebration came one day after national Tax Freedom Day, making us the 36th state to celebrate. Last year we did slightly better as the 35th state to celebrate on April 21st.
However, Tax Freedom Day has arrived later and later each year as government spending has climbed. For some perspective, national Tax Freedom Day was January 22nd in 1900.
Is placing 39 out of 50 in any competition acceptable? Most people would say no, which is why a new index published by the American Legislative Exchange Council (ALEC) is so unsettling.
Released on an annual basis, the Rich States, Poor States index ranks states based on their economic performance and economic outlook. In the first category, Pennsylvania performed poorly, ranking 39th. Future economic performance doesn’t look promising either. The authors of the index place Pennsylvania in the bottom ten at 41.
The rankings are based on fifteen different variables that include tax rates, debt service as a share of tax revenue, labor regulations, and tax or expenditure limits. Pennsylvania ranks poorly in nearly all of these areas year after year. As Jana Benscoter of Watchdog points out, Pennsylvania’s economic outlook ranking has never been higher than 33rd.
This isn’t surprising given the dramatic growth of government spending and taxation since 1970 and Pennsylvania’s inhospitable regulatory environment, both of which are roadblocks to job creation and prosperity.
But Pennsylvania doesn't have to continue down this path. If the commonwealth lowers the tax burden on businesses and families, restrains spending growth, and fixes its regulatory climate, we can shed these low rankings and grow an economy that works for everyone.
We're at a watershed moment, with a choice between the largest tax hike in Pennsylvania's history or reducing government spending to leave more in the pockets of Pennsylvanians. It's a choice between prosperity or economic stagnation.
Residents continued their exodus from Pennsylvania in 2014.
The latest Census population estimates, released last month, show that Pennsylvania gained 5,913 in total population between July 2013 and July 2014. This increase was driven by natural causes—13,400 more births than deaths—and international migration (a net of 29,000).
However, on the negative side, the state lost 31,400 residents to other states in net domestic migration. Only New York, Illinois, New Jersey and California lost more.
United Van Lines data supports this, putting Pennsylvania among the top 10 "outbound states" (again, New York, New Jersey, and Illinois top the list).
But it's part of a larger trend as well. State residents have been fleeing from high tax states to lower tax states. Indeed, while a net loser on the whole, Pennsylvania has gained population from residents fleeing higher-taxed New York, New Jersey, and Maryland.
That residents "vote with their feet" must be considered in any discussion of increasing Pennsylvania's tax burden.
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.
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.
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.
This latest look at Pennsylvania's fiscal house shows the urgency of pension reform and spending restraint.
Fitch Ratings yesterday downgraded Pennsylvania's bond rating. This effectively sends a sign to investors of greater risk in buying Pennsylvania bonds, which could result in higher interest rates for state projects like road repair and school construction. These additional costs will be passed on to taxpayers.
Fitch writes that the downgrade was based on "the commonwealth's failure to adequately address key fiscal pressures." Fitch noted a "structural imbalance"—meaning revenues aren't keeping pace with state spending.
Failure to enact pension reform was a major factor in the downgrade. Fitch writes, "Sizable increases in [pension] contributions due to the systems were required in the current-year budget and are forecast in the coming years, and are projected to consume much of future revenue growth." This exponential growth in future taxpayer pension costs—and the downgrade—shows why we simply cannot "let Act 120 work".
Moreover, Fitch notes that the pension crisis is going to get worse, not better, as the unfunded liability is expected to grow until 2018. The report also mentions the lack of action pension reform measures, and suggests it is "unclear if any pension reform will be enacted."
Why did pension reform fail to happen? Matt Brouillette shows how the "Big Government Party" that benefits from the status quo blocked reform. In another recent piece, Priya Abraham describes how we can protect taxpayers from the Pension Tsunami.
The downgrade in our state borrowing only shows the urgency for pension reform now.
CNBC just released its ranking of the top states for business in 2013. In case you missed the subtle wording in this blog's title, Pennsylvania languishes near the bottom.
Pennsylvania turned in its worst performances in the categories of "Cost of Doing Business"and "Workforce" (44th each) and highest in "Technology & Innovation" and "Access to Capital" (5th each).
Why is Pennsylvania failing to compete, falling below even states like Illinois and New York that are hardly known for their economic growth?
You can look to this year's state budget to better understand why Pennsylvania isn't seen as an ideal destination for businesses. While our poor ranking is hardly the result of one year's legislation, the burdens our government places on job creators were on full display.
For the fourth time, the legislature delayed the phase-out of the Capital Stock and Franchise Tax, a double tax that discourages business investment and kills jobs. Desperate for revenue, lawmakers pushed back the phase-out of this tax—which was originally set to end in 2009—until 2016.
And what about the catchphrase "closing the Delaware Loophole?" Instead of helping taxpayers or businesses, it merely gives the Department of Revenue more power and makes filing tax returns more complex.
Combine these unfriendly measures with the fact that Pennsylvania businesses pay the second highest tax rate on their profits in the entire industrialized world, and you start to wonder how Pennsylvania ranked as high as 39th.
It doesn’t have to be this way. Pennsylvania is gifted with abundant natural resources, fearless entrepreneurs, and cutting-edge technologies. Lawmakers should work to cultivate the state's business environment by lowering the overall tax burden, ending the Capital Stock & Franchise double tax once and for all, and passing more business-friendly legislation such as Sen. Pileggi's and Rep. Bloom's successful effort to end the state's death tax on small businesses.
Until lawmakers recognize that it is businesses—not government—that create wealth, our rank will only drop further and we’ll continue to see Pennsylvania's job creators and job seekers head to friendlier states.
Things are looking somewhat up for Pennsylvania’s economy, according to the annual Rich States, Poor States published by ALEC. The 2013 edition ranks Pennsylvania 34th in economic outlook, up from 40th last year and the highest economic ranking since the index’s creation.
Rich States, Poor States considers 15 factors heavily influenced by state policies to predict how a state’s economy will perform. While the commonwealth’s high tax burden and lack of worker freedom continue to hinder growth, a slowdown in state spending and continued phase-out of the capital stock and franchise tax have helped the state move from the bottom third to the middle-of-the pack.
But middle-of-the-pack isn’t good enough. To continue to attract jobs and investment, Pennsylvania will have to tackle big cost drivers like Medicaid and the pension tsunami. Continued tax reforms will help too, such as Governor Corbett’s latest proposal, which we estimate will create more than 2,500 new jobs by 2018 if enacted.
Pennsylvania's teachers unions rank fourth among all U.S. states in their strength and influence, according to a report released this week from the Fordham Institute. We trail only Hawaii, Oregon and Montana.
Among the factors contributing to the muscle of the Pennsylvania State Education Association (PSEA) and the Pennsylvania Federation of Teachers (PFT) are rich resources, deep political involvement and broad collective bargaining privileges. For example:
- PSEA and PFT have a wide combined membership (223,000 according to our count). According to Fordham, that translates to the 12th-highest rate of union membership in the United States, at 93.4 percent, and the 19th-highest annual revenue for state affiliates.
- Union donations made up 1.5 percent of total contributions to political candidates for state office, the 10th-highest among states.
- Collective bargaining is mandatory for public school teachers in Pennsylvania, and they are allowed to strike. In addition, bargaining is explicitly required or permitted over wages, hours, terms and conditions of employment, and management rights. State law implicitly allows for collective bargaining in 17 other areas, including tenure, layoffs, pension benefits, length of school year, and so on.
In fact, the PSEA is preparing to flex even more political muscle—once again increasing dues on teachers and other school employees. In 2012-13, a full-time public school teacher and PSEA member will pay $669 in combined dues to the PSEA and the National Education Association. That's 21 percent higher than five years ago.
Over the past few years, the PSEA has been plowing member dues into politics. In 2007-08, the union spent $1.9 million on "political activities and lobbying," which include election mailers, get-out-the-vote drives, independent campaign activities and lobbying of legislators. By 2011, just three years later, such spending had skyrocketed to $4.2 million—a 121 percent increase. This money doesn't count contributions to PSEA's political action committee, PACE, which further rakes in millions.
Despite raising union dues and spending heavily on politics, teachers unions still hang younger members out to dry in tough economic times. Hundreds of teachers have been laid off across Pennsylvania, and the first to go aren't the worst teachers. With union seniority rules, they're just the youngest. Take Esme Santiago, 26, who taught English as a second language in her hometown of Reading (America's poorest city): "I was thinking about my kids. I honestly love my job. My passion is teaching kids in Reading."
All the statistics about unchecked union influence boil down to this: Kids' education gets hurt. Taxpayers get hurt. And even teachers like Esme get hurt, too. That's the price Pennsylvanians pay for winning fourth place in the union power rankings.
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