Pennsylvania’s tax structure should benefit all Pennsylvanians, not just some. Unfortunately, our state’s stifling tax burden harms residents. Each year, government spending grows, increasing the pressure for higher taxes. These taxes weigh heavily on the state’s economy and lead to slow job and income growth. Lower taxes are the key to a stronger economy.
How did a registered Democrat and the daughter of former Democratic Governor George Leader find a place on Commonwealth Foundation’s Board?
New census figures paint a sobering picture. In 2015 alone, Pennsylvania lost 41,600 residents to other states in net migration. This amounts to one person every 12.5 minutes, nearly the entire population of York. Residents in states with higher state and local tax burdens are more likely to want to move than those in lower-tax states. Below are real-life stories of Pennsylvanians on the move.
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Last year, nearly 42,000 Pennsylvanians left the state to pursue their dreams elsewhere—that's one person every 12 and a half minutes. Why is money walking out of Pennsylvania?
That’s the topic of the second episode of Commonwealth Insight, our new, bi-weekly podcast featuring state and national entrepreneurs, policy makers, and thought leaders tackling issues critical to Pennsylvania's economic future.
First, we talk with Travis Brown, Forbes contributor and author of How Money Walks, who says Pennsylvanians are “voting with their feet and taking their wallets” to states like Florida, North Carolina, and Arizona because of our state’s tax burden.
He explains that states compete with each other to attract investment and residents:
Just like the Steeler Nation would look competitively across state lines and do the scouting and reporting to see how we can be better and better next year against the New England Patriots, every competitor would look to the North and say: How can we attract these residents and how do we keep the residents we have?
Travis says there are three major policy areas Pennsylvania can change to be more competitive: regulation, taxation, and litigation.
To reverse out-migration and make Pennsylvania attractive to families and businesses, we must avoid higher taxes, more government spending, and greater regulation.
We also talk with Bob Dick, senior policy analyst for the Commonwealth Foundation, about how the Pennsylvania state budget works—and doesn’t work. Bob says state spending is growing beyond its citizens' ability to fund it, resulting in tax hikes that kill jobs and slow private sector growth. The politically unpopular, but fiscally responsible, solution is to control spending.
posted by DOUGLAS BAKER | 01:57 PM | Comments
Amy Crivella was addicted to cigarettes. She tried everything—gum, patches, going cold turkey—but nothing worked. Then, she tried e-cigarettes, or vaping, and she didn’t need a cigarette for the first time in 17 years.
The mom of two closed her bakery and took out a loan to open East Coast Vapes in Cranberry Township near Pittsburgh. Amy estimates her business has helped about 700 people reduce smoking or quit cigarettes altogether since she opened her doors almost a year ago.
“I didn’t choose to do this to make a buck,” she says. “If I can pay my bills, I’m happy. We’re helping the grandmas and the grandpas quit smoking. We’re not looking for a handout.”
But Amy’s business and her family’s livelihood are in danger. Tucked away in this year’s budget is a retroactive 40 percent wholesale tax on e-cigarettes that goes into effect on October 1. This means Amy will have to send Harrisburg a check for 40 percent of the wholesale value of her entire inventory—including the inventory she purchased well before this tax was even considered.
Not only will the tax force Amy to lay off all three of her employees, but it may financially ruin her.
I don’t know if I’m going to make it. I don’t even have the option to close. I signed a five-year lease, and I’m personally responsible for those payments. I’m going to lose everything. My parents helped me take out that loan. The bank will go after their house if I don’t make my payments. I don’t know what I’m going to do.
Unfortunately, Amy has learned how dangerous big government can be:
I didn’t know too much before, and the more I learn the more scared I get. I didn’t even know what a lobbyist was until about four months ago. I should never fear my government, and I fear them right now. We hired them to stand up for the little people, and I feel like a punching bag. They don’t care that we pay $16 million in other taxes every year.
This fall, lawmakers have a choice: They can shut down businesses across the state for a mere (in relation to the rest of the budget) $13 million in projected revenue from the tax, or they can spare people like Amy from losing their livelihoods.
For starters, lawmakers should support a move spearheaded by Rep. Jeff Wheeland (R- Williamsport) to replace the 40 percent tax with a 5-cents-per-milliliter tax, similar to what exists in North Carolina and Louisiana.
If additional savings are needed, lawmakers should cut hundreds of millions in corporate welfare tax credits and optimize state health care spending. Pennsylvania could save $153 million a year if state workers contributed to their health care at the same rate as private sector workers. Common sense solutions to savings and revenue exist that don't unfairly punish businesses like Amy's.
Like other vape entrepreneurs, Amy plans to empty her inventory to avoid the 40 percent floor tax. In the meantime, she hopes lawmakers will act quickly to repeal or replace the tax instead of sending families like hers to financial ruin.
Buried in a little debated 267-page tax code bill is a provision emblematic of Pennsylvania’s corporate welfare culture.
The provision directs hotel tax revenue generated inside a Neighborhood Improvement Zone (NIZ) to hotel owners and developers. The revenue can be used to pay for hotel renovations or to finance entirely new hotels.
The hotel tax normally funds tourism promotion and economic development for the Lehigh Valley. But now, rather than using the revenue to promote the Lehigh Valley, it will be used to subsidize a small group of private enterprises.
“This is blatantly unfair competition,” said Bruce Haines, who is a managing partner of the Hotel Bethlehem, which competes directly with hotels inside the NIZ. “We worked hard to get where we are. We put our own capital on the line. We did it the old-fashioned way.”
The new rule governing the NIZ will make it harder for entrepreneurs like Bruce to compete. Businesses inside the NIZ already had access to tax dollars before the change. Now they’ll have an even larger pool of tax dollars to use for new projects.
This raises an obvious question: Are the subsidies necessary? Research and experience both say no.
According to scholars from the Cato Institute and the Lincoln Institute of Land Policy, NIZ-type programs generally don’t create new wealth; they just shift its location. These findings are consistent with Bruce’s experience: “The NIZ isn’t really creating new businesses. They’re just moving from the surrounding areas into the NIZ. The market works for hotels. It doesn’t need subsidies.”
Bruce understands that competition is a necessary part of any free market. “If more businesses open in the Lehigh Valley without subsidies, that’s okay because it’s fair. But I should not have to lose potential customers because of crony capitalism. Philosophically, that bothers me.”
Handing out tax dollars to businesses, carving out special exemptions, or creating new rules benefiting a select few dampens economic growth. To promote broad-based prosperity, government must refrain from tilting the playing-field in favor of any business.
Last year, nearly 42,000 Pennsylvanians left the state to pursue their dreams elsewhere—that's one person every 12 and a half minutes. Why is money walking out of Pennsylvania? That’s the topic of the second episode of Commonwealth Insight, our new, bi-weekly podcast featuring state ...