Why 16% Tax Increase Would Cost Pennsylvania 24,000 Jobs

I’ve gotten a couple of question on the “how” and “why” we estimate that Rendell’s personal income tax increase will cost 24,000 Pennsylvania jobs.

The estimate of 24,000 jobs lost came from an economic modeling program called PA-Stamp developed for us by the Beacon Hill Institute at Suffolk University.   The “jobs lostâ€? is the difference between how many jobs the state would have at current tax rates, and how many following an income tax increase. 

The model calculates, based on historical trends in PA and other states, the effect of changes in tax rates on economic performance, business, and individual  behaviors.  Why would jobs be lost?  People will have less money to spend, small business owners will pay higher taxes and have less to invest in their companies, and some individuals and businesses will move to other states.

That increase  is on top of what Pennsylvanians already pay for government (almost $40,000/family for state and local government), and the current tax burden – 11th highest in the nation.  As we have pointed out before, not too many people (about 1% of Pennsylvanians) think their taxes are too low.

What are the alternatives to a tax increase?  The Senate budget is a good start, as even with its cuts, it represents 36% spending growth under Rendell– about double the rate of inflation plus population growth.  And yes, we would support deeper cuts – we identified over $5 billion in wasteful spending in our report Government on a Diet: Spending Tips 2009.

We also recommended (in that report and elsewhere) – Medicaid reform, providing more school choice, reforming higher education funding, privatizing the state liquor stores, privatizing PHEAA, privatizing museums and the arts, reforming the state pension systems, and repealing prevailing wage laws (an estimated $9 billion cost on state and local government).