As 2016 comes to a close, we're counting down the most popular blog posts of the year, as determined by web traffic:
Election results in states like Pennsylvania showed the political benefit of taking on powerful government union interests to protect taxpayers from tax hikes and special political privileges.
A devastating story about the impact that bad policy has on good people. A tax that was buried in the state budget, and is insignificant towards closing the deficit, has crushed Chris Hughes' business and his dream.
Chris Hughes wasn't the only business owner that was effectively shut down by the punitive, retroactive tax on e-cigarettes. We shared more stories of bad government policy that harmed job creators and entrepreneurs around the state.
State budgets are complicated, expensive matters. We break down Gov. Wolf's second budget into five facts all taxpayers need to know.
If lawmakers don’t raise taxes, Pennsylvanians should brace for drastic cuts to education and human services. This myth was promoted endlessly by the Wolf Administration to justify taking more out of the pockets of working people. We debunk it, in our most-viewed blog post of 2016.
An intimidating budget shortfall this year and next has state leaders calling for a change to the status quo. That is: surging state spending. Governor Wolf is pulling back on corporate welfare programs, like Keystone Opportunity Zone tax breaks, while legislative leaders have called for "restructuring" state government. The economic evidence backs this up.
This year's Economic Freedom of North America report from the Fraser Institute shows Pennsylvania's record high spending is undeniably linked with less economic opportunity.
The state ranks a disappointing 30th when it comes to controlling state spending and an abysmal 37th in income and payroll tax revenue as a percent of personal income. In other words, Pennsylvanians have seen their tax burden increase and economic opportunity decrease as state debt and state spending continues to climb.
Overall, this year's index, including data from 1984 to 2014, ranks Pennsylvania 18th among the states.
The report emphasizes a lesson Pennsylvania desperately needs to learn: Unrestrained government spending doesn’t create economic growth—it kills it. But responsible spending growth will allow lawmakers to ease the tax burden for everyone. That’s how you create an environment of opportunity and economic growth for all Pennsylvanians
RELATED : JOBS & ECONOMY, ECONOMY, STATE RANKINGS, TAXATION
Pennsylvania’s financial condition is challenging policymakers to change how state government operates. For example, House Majority Leader Dave Reed recently called for a “restructuring” of government as an alternative to tax hikes. A leaner government would be a welcomed change from the decades-long rise in government spending.
Gov. Wolf’s initial response to the latest deficit projections is also promising. The governor has ruled out sales and income tax increases, and he has instituted a hiring freeze—with a few exceptions—to help control costs. CF recommended a hiring freeze back in October when it looked like the budget would remain unbalanced for the duration of the fiscal year.
Governor Wolf's willingness to reduce expenses and his reluctance to raise broad-based taxes are positive developments in Pennsylvania’s budget debate. And both are wholly defensible given the challenges facing the state—three of which stand out:
1. Pennsylvania’s tax burden is already set to rise in 2017. Act 89 of 2013 raised the Oil Company Franchise Tax (OCFT) to pay for $2.3 billion in additional transportation spending. The act phased-in the tax increase over five years, with the final increase scheduled for 2017. The tax is set to rise by 8 cents a gallon, the highest state gasoline tax rate in the nation.
2. The economy is struggling. The commonwealth’s unemployment figure—5.7 percent—is more than 1 percentage point above the national rate. According to the Associated Press, this is the largest disparity between the state and national rate since 1985. Overall, Pennsylvania’s rate ranked 6th worst in the nation as of November 2016. Common sense and scholarly research suggest taking more money out of the pockets of working people will only exacerbate this trend.
3. Problematic demographic trends can’t be reversed with higher taxes. For the first time since 1985, Pennsylvania’s total population declined, falling by more than 7,600 people. The decline is attributable to the 45,565 residents who moved to other states (known as domestic migration)—a rate of 1 person every 11.5 minutes. Out-migration isn’t our only demographic challenge. Pennsylvania is also getting older.
According to the Independent Fiscal Office, the number of people 60 and over will rise by 891,000 over the next 25 years. In contrast, the population of those 59 and younger will increase by just 241,000. A taxpayer exodus coupled with an increasingly older popular using more government services is a recipe for fiscal crisis.
Overcoming these fiscal, economic, and demographic challenges won’t be easy, but it is possible. And we identify how in our recently released policy brief, which proposes short- and long-term reforms Pennsylvania can pursue to transform itself into a place where people want to live and work.
Yesterday, Gov. Tom Wolf indicated he would not propose an income tax or a sales tax increase as part of his next budget. This comes as something of a surprise, given the past two budgets and the current state deficit.
To be clear, this doesn’t take other tax hikes off the table—last year the legislature passed $650 million in tax increases on cigarettes, tobacco, vaping products, and digital downloads and Gov. Wolf has continually supported an additional tax on natural gas. Nonetheless, sales and income taxes have been the 800-pound gorilla and the elephant in the room in the last two budget proposals, so taking them off the table at this stage should be considered a welcome relief to taxpayers who are already overburdened with taxes.
Gov. Wolf indicated he would try to balance next year’s budget by reducing spending and adopting innovative reforms.
Here’s some great news: Commonwealth Foundation just released a new brief outlining spending reforms—both short-term and long-term—that can help control state spending and deliver greater economic growth and prosperity to all Pennsylvanians.
A promise to avoid major tax increases—by reforming our state budget to control spending growth—is a nice stocking stuffer for Pennsylvania families this holiday season.
RELATED : TAXES & SPENDING, PENNSYLVANIA STATE BUDGET
For the first time in 31 years, Pennsylvania's population is shrinking. The Census Bureau reports Pennsylvania’s total population fell by more than 7,600 last year. In state-to-state migration, one Pennsylvanian left the commonwealth every 11.5 minutes—that's a loss of 46,000 from July 2015 to July 2016.
Nationwide, Pennsylvania is an outlier. We are one of just eight states that lost population. In contrast, many states seeing population growth—including Texas, Florida, North Carolina, Nevada, and Idaho—have lower tax burdens than the commonwealth.
A Gallup poll conducted last year found residents in states with higher state and local tax burdens are more likely to want to leave than those in lower-tax states.
Lower taxes starts with limiting government spending. Had Harrisburg limited spending growth to inflation and population since 2000, Pennsylvanians would be saving nearly $22.2 billion in taxes, or $6,952 per family of four.
Without bold steps to spend responsibly and lighten the tax burden, we'll continue to see fellow Pennsylvanians flee to friendlier tax climates.
RELATED : JOBS & ECONOMY, ECONOMY, STATE RANKINGS, TAXATION
As a recent graduate from PA Leadership Charter School (PALCS), I’m familiar with school choice. In fact, for the past five years, I have joined my Student Government on an annual trip to the capitol in an effort to preserve and strengthen cyber charter schools. I have been homeschooled and cyber charter schooled all of my life, and I know these schools are worth fighting for because traditional schools don’t work for everyone. I've heard countless stories from students who found success when given the choice for an alternative education.
My sister, Cherise, is one of those students.
Upon Cherise’s adoption from Haiti at the age of six, my parents discovered she had lead poisoning, a condition bearing symptoms of developmental delays and learning disabilities. As a result, she processed information more slowly than most and struggled to remember what she learned.
My parents homeschooled her and the rest of my siblings until we reached middle and high school. In the fall of 2009, she began PALCS for about a month. Without an IEP, she struggled in her classes. Thankfully, the principal of our school district’s elementary school recommended we test her for an IEP at Paxtonia Elementary School. At 12 years old, Cherise enrolled at Paxtonia. After completing her IEP tests, she was placed in a 4th grade classroom with 1st grade work.
She loved it. Every day, she met with a Special Ed teacher, thrived in her studies, and enjoyed the public school experience.
One might conclude that because traditional public school helped her succeed once, it would always be the best choice for her. This was not the case. Before Cherise turned 13 in August of 2010, the school district moved her to Central Dauphin Middle School so she could stay closer to her age group. Skipping 5th grade, Cherise found herself in a Special Ed 6th grade classroom.
On the spectrum of severely mentally disabled to normal, Cherise fell just short of normal. Many of her classmates, though, struggled with more complex or severe disabilities. As a result, the classroom proved difficult for her on account of many distractions, interruptions, and behavioral challenges from classmates. Added to that, she faced racist remarks on the school bus and witnessed other students face bullying and discrimination outside the classroom.
Do all public school students experience these circumstances? Absolutely not. However, for Cherise, it was the furthest thing from the thriving learning environment she deserved.
That’s when PALCS came back into the picture. At that time in her life, and for the right reasons, PALCS worked for Cherise. After finishing 6th grade, she transferred back to PALCS with her IEP and thrived in 7th grade. Ever since, Cherise has had the opportunity to job shadow with various local businesses, complete speech therapy, receive one-on-one help from teachers, meet consistently with a life skills teacher, increase her reading skills, and even take classes to earn an arts certificate when she graduates next spring.
I could not be more proud of Cherise and the hard work she’s done to learn and stretch herself. Were it not for school choice and the wonderful teachers and faculty who support it, she would not be where she is today. Her story makes clear that both traditional and cyber charter schools have something to offer students. Both systems exist for the student, and every student is unique. Therefore, whether students thrive in a traditional public school or in cyber charter school, school choice matters. Cherise can attest to that.
RELATED : EDUCATION, CYBER SCHOOLS, SCHOOL CHOICE
Pennsylvania is in a slump. The latest grades from 24/7 Wall St. have the Keystone State ranked 42nd in terms of The Best Run State in America. This is down from 41st in 2015 and 15th in 2011. The results measure economic indicators, social factors, fiscal health, and financial responsibility.
Rounding out the bottom 10 are Connecticut, West Virginia, Pennsylvania, New Jersey, Louisiana, Kentucky, Alabama, Mississippi, Rhode Island, Illinois and New Mexico.
Pennsylvania’s ranking suffers from an unemployment rate almost 1% above the national average. The unemployment rate was 5.8% in October, up from 4.8% at the same time last year. Some of this can be attributed to one of the highest tax burdens in the country.
Another startling fact is the lack of state reserves. Pennsylvania has the second-lowest amount of funds available in our coffers for a rainy day—enough to fund the government for about three days.
Our growing pension liability is a primary reason the state has little in reserves. Yet earlier this year, legislation to reform pension plans failed.
Our broken welfare system is another major contributor to economic stagnation and out-of-control government spending. Fundamental reforms in these programs could spur job growth and lower spending. These reforms include applying work requirements to more programs and requiring single parents to file for child support as a condition of enrolling in safety-net programs.
Politicians are understandably focused on the short-term, but good policy solves problems rather than kicking them down the road. And solving problems is always good politics.
Pennsylvania must confront a $604 million deficit, according to Budget Secretary Randy Albright. This sober assessment was offered during the mid-year budget briefing earlier today.
The Independent Fiscal Office (IFO) offered a similar conclusion last month when it released a report projecting a $524 million deficit for the current year. The administration’s findings—along with the IFO report—reinforce the need to reverse the problematic budget trends afflicting Pennsylvania.
The present deficit is a combination of excessive spending growth—including $183 million in “supplemental appropriations” or spending above levels authorized in last June’s budget and poor revenue collections. The latter is a problem we’ve been documenting since the fiscal year began.
The good news is both the governor and lawmakers want to avoid broad-based tax increases to close the deficit. Secretary Albright says the governor is asking cabinet secretaries to find ways to cut back on expenses. And House Majority Leader Dave Reed wants to reevaluate the state budget’s structure:
Government has basically looked the same in Pennsylvania for the last 40, 50 years," said Reed. "We just go through the budget each year . . . We want the budget to look different this year.
The majority leader’s perspective is encouraging. As we’ve detailed in the past, Pennsylvania’s budget is set on autopilot, which means spending continuously grows without review or debate over the sustainability and effectiveness of state programs. A willingness to buck this trend could be a turning point in efforts to curtail spending growth and fix our broken corrections, education, and welfare systems.
Implementing real reforms and cutting back on unnecessary expenses can help the governor and General Assembly avoid tax increases that cost entrepreneurs their livelihoods and fail to solve Pennsylvania’s persistent fiscal predicaments.
RELATED : TAXES & SPENDING, CORPORATE WELFARE, PENNSYLVANIA STATE BUDGET, TAXATION
The political landscape has experienced a seismic shift, and it isn't centered in Washington DC. This past weekend Kyle Peterson of the Wall Street Journal highlighted Pennsylvania and six other states poised to transform their state and, in turn, our nation.
"The dynamic has shifted considerably," CF president & CEO Charles Mitchell says in Peterson's article, The Spoils of the Republican State Conquest.
Charles notes issues like meaningful pension reform are not only possible in the upcoming legislative session but probable. And paycheck protection—while once "laughed out of the room"—may land on the governor's desk.
Four of the seven states briefly profiled focus on labor reform as a necessary component of restoring economic opportunity. Any labor reform that prevents union executives from imposing their will on workers is essential to putting Pennsylvania back on the path to prosperity.
Tax reform was also a recurring theme in the article. In Pennsylvania, pension reform is, in many ways, a tax reform issue. After all, surging pension costs are a key driver of rising property taxes and yearly budget shortfalls that lead to tax hikes. So any effort to reform the tax code will likely require spending restraint.
Overall, the WSJ's highlight of CF as a frontline fighter for free-markets is an incredible endorsement of our mission and a compliment to every lawmaker working to pass the reforms that will improve the lives of all Pennsylvanians.
RELATED : JOBS & ECONOMY, ECONOMY, PUBLIC EMPLOYEE PENSIONS AND BENEFITS, UNION DUES AND POLITICS
In 2013, the Pennsylvania Liquor Control Board (PLCB) released its first annual report, emphasizing record sales and “profits.” Neither of these is impressive when analyzed in context, but the PLCB continues to tout them as accomplishments.
As we’ve pointed out repeatedly, the PLCB has—until the passage of Act 39—had a monopoly on wine and liquor sales. Bragging about sales and profits when shielded from competition is like running a victory lap after ‘winning’ a race with no competitors. Nevertheless, the latest report unwittingly makes the case for full privatization.
By its own numbers, the agency is a liability rather than an asset for Pennsylvania. Here’s why:
- The PLCB’s net income in 2015-16—although higher than the prior year—is still down 19 percent from fiscal year 2012-13. This despite reporting record sales of $2.43 billion.
- The PLCB’s operating expenses continue to rise and were 22 percent higher in 2015-16 than in 2011-12. Higher expenses may be justified if the PLCB were operating more stores. It’s not. Store locations declined from 608 to 601 over the same time period.
- Total liabilities increased by $105.4 million for the year, due largely to the agency’s pension obligations. Overall, its poor net financial position did not change significantly. It ended the year approximately $238.2 million in the red.
Still, PLCB apologists remain steadfast in opposing privatization. They claim the agency makes money for the state and eliminating it would blow a hole in the budget. Yet, 77 percent of PLCB transfers to the General Fund come from taxes, which consumers and businesses would still pay under a private system. In fact, revenue would likely increase under a competitive system, which gives consumers more choices and fewer reasons to buy alcohol in other states—a problem known as “border bleed.”
The case against the PLCB isn’t strictly financial. The agency has a long history of corruption and a string of shortcomings that are well documented. The latest was on display just before Thanksgiving, when the state stores’ credit card system overloaded and failed because it could not handle the sales volume. This statewide failure would not have been possible in a truly competitive market.
The good news is the legislature recognizes the futility of the PLCB’s market operations. Last year, lawmakers voted for the first time in state history to privatize the system. However, Gov. Wolf vetoed the bill for dubious reasons. This should not stop the legislature from putting another privatization bill on his desk.
With the Taxpayer Party set to increase its majorities in the General Assembly, Gov. Wolf may finally have to acknowledge a political reality: liquor privatization is popular inside and outside state government.
RELATED : PRIVATIZATION, LIQUOR STORE PRIVATIZATION
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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.