Say you’re working your way through college, supplementing student loans with a part-time job managing inventory at Wegmans. You make a decent hourly wage, but your health insurance benefits are key, saving you thousands per year in premium costs. Then, one Monday, your boss tells you part-timers are no longer eligible for benefits.
Jim VanBlarcom, a busy Bradford County dairy farmer, set a work day aside to come to Harrisburg and tell his story to Gov. Tom Corbett's Marcellus Shale panel. Royalty money from leasing farmland helped him double his dairy herd size, and he's glad the industry's here.
Penn's Woods are darker and deeper in red ink than ever before thanks to the tax-borrow-and-spend agenda of the Rendell Administration and some General Assembly members who failed to put Pennsylvania back on a path to prosperity. To add insult to injury last month, the U.S. Census Bureau announced that Pennsylvania would lose another Congressional seat in 2012 due to stagnant population growth.
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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!
Who are We?
The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.