Grow the Economy, Not Government

Rendell misplaces his faith in government to stimulate the economy

HARRISBURG, PA — The Commonwealth Foundation expressed disappointment in Gov. Ed Rendell’s FY 2008-09 budget proposal that would grow state government spending with the false promise to grow the economy.

“Both economic theory and empirical evidence demonstrate that reducing taxes—rather than increasing government taxing, borrowing, and spending—encourages investment, productivity, and wealth creation,” noted Matthew Brouillette, president and CEO of the Commonwealth Foundation. “Lawmakers can grow the government or they can grow the economy, but they can’t grow both. Unfortunately, Gov. Rendell’s proposals will only serve to stunt economic growth, rather than stimulate it.”

The Commonwealth Foundation also highlighted Gov. Rendell’s continued misrepresentation of the real growth in state government spending. The Governor claims to be increasing the General Fund by only 4.2%, but he excludes many spending increases, including supplemental appropriations (which increases the baseline), the shifting of spending to other funds, and the creation of new spending programs.

“Gov. Rendell should be honest with the people of Pennsylvania with his proposed increases in government spending,” said Brouillette. “Under his proposal, total state spending would increase 5.7%, or $2.34 billion, this year alone. In addition, Gov. Rendell wants to borrow another $3.3 billion that future generations will be forced to pay back.”

The Commonwealth Foundation also criticized Gov. Rendell’s so-called “economic stimulus” proposals, which includes the borrowing of billions to fund new and expanded corporate welfare programs. In addition, the Governor proposed using tax surpluses to make one-time cash welfare payments of up to $400 to individuals and families who do not pay personal income taxes.

“If Pennsylvania is the next state to stimulate its economy with an expansion of the welfare state, it will also be the first,” said Brouillette. “Wealth redistribution has never paved the path to economic prosperity.”

In contrast, the Commonwealth Foundation applauded alternative proposals being championed by House Republicans that would restrain government spending and reduce taxes to stimulate the economy. The House Republican proposals call for a “zero-growth” budget, a reduction in the Personal Income Tax on workers and small businesses, reductions in the Corporate Net Income tax, and elimination of the gross receipts tax on electricity.

The Commonwealth Foundation expressed support for Gov. Rendell’s effort to lease the Pennsylvania Turnpike to a private operating partner—a proposal that would likely generate more revenue for the state than the tolling of I-80 and the $13 billion in Turnpike Commission bonded debt. However, the Commonwealth Foundation encouraged the Governor to do a better job of cooperating with lawmakers to establish the parameters of a lease deal, including provisions that protect taxpayers and constitutionally restricts the lease proceeds to transportation infrastructure investments.

Finally, the Commonwealth Foundation identified many budget programs that should be fully eliminated from the state budget to focus spending on core government functions. Last week, the Commonwealth Foundation released Government on a Diet: Spending Tips 2008, a report which identifies $6.7 billion in “unhealthy” spending from the state operating budget, capital budget, and off-budget agencies.

Spending Tips 2008 is part of the Commonwealth Foundation’s Pennsylvania Diet Plan: 3 Steps to Fiscal & Economic Health. The Pennsylvania Diet Plan is a program designed to help state government shed millions and billions of dollars in unnecessary and wasteful spending of taxpayer money and put the commonwealth back on a path toward fiscal and economic health. For more on the Pennsylvania Diet Plan, visit

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EDITOR’S NOTE: The full report, Government on a Diet: Spending Tips 2008, is available online at or by calling 717.671.1901.

The Commonwealth Foundation ( is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.

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