Higher taxes won’t help Pennsylvania economy

The Pennsylvania Budget and Policy Center (PBPC) issued a news release, gleefully welcoming the looming state budget deficit and tax increase. Their exuberance is due to the fact that they think taxes are too low, and government deserves more of it. But there are blatant logical, factual, and ideological errors in their analysis.

1) They make the absurd claim that “state spending cuts will result in a dollar-for-dollar reduction in state economic activity” and that any new government spending “will provide an infusion of funds into the Pennsylvania economy”. It’s as though spending by government creates new money, rather than takes money out of the private sector through taxes and borrowing. If the PBPC’s economic logical is correct, then government spending should be increased to infinity, with no repercussions, because it will create unlimited economic growth.

Of course, I’m being sarcastic, because government has no money except that which it first taxes from it citizens. Additional government spending no more adds to the economy than splashing water across a swimming pool increases the level of water in the pool. The PBPC should take advice from far right wing icons like John F. Kennedy who, when facing a recession said, “Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income” and Barack Obama, who noted that increasing  taxes was the wrong thing to do if the economy continues to struggle.

2) Their use of data on the growth of taxes and spending is deceptive – government spending has increased faster than income.

  • PBPC looks only at state General Funding spending. General Fund spending as a percentage of personal income has increase, but this represents less than half of total state spending. The state operating budget has increased much more quickly, relative to personal income.
  • Add to that local government spending, which represents about the same level of spending as the state budget – and has likewise increased substantially faster than personal income – and families are paying substantially more for government.

Pennsylvania Government Spending as a Percentage of State Personal Income
1988-89 1991-92 2008-09
State General Fund 5.39% 5.66% 5.72%
State Operating Budget 9.70% 10.95% 12.20%
State and Local Government Spending Combined 21.92% 24.37%
Sources: State Spending – Governor’s Executive Budget, Local Spending – US Census Bureau, Tax Burden – Tax Foundation, Personal Income – Bureau of Economic Analysis

Each 1% of personal income represents $5 billion, or about $400 per capita ($1,600 per family of four). Had state and local spending remained at a constant level of personal income since 1991-92, the average family of four would save around $3,900 in the cost of government.

3) Their view of government spending – that government deserves a set, or even increasing, percentage of your income – implies there should be no limit to the size, scope, or function of government.

  • The PBPC view of government – that it should grow with (or faster than) personal income – is socialistic. The Christian concept of tithing implies that everyone should give a portion of their income (10%) to the Church. For socialists and groups like the PBPC, government is the new church—government deserves a percentage of everyone’s income, regardless of what it is to be spent on. Naturally, the view that government should grow with income flows from a mindset that government should redistribute wealth.
  • The founding fathers believed that government should be limited to its proper and define role – namely, to secure the rights of citizens. National defense, protection of life and liberty, and “promoting the general welfare” are among the proper functions of government. Even if one thinks that the core functions of government include public education and a “safety net” of public welfare, spending on these functions and services of government should grow not with income, but with inflation and population. 

In inflation-adjusted terms, Pennsylvania state and local government spending has grown from just over $7,000 per person, to almost $10,000 per person ($28,000 to $40,000 per family of four), a 40% increase.