April 15 marks the first Tax Day on which Pennsylvanians will fully feel the impact of the roughly $1 billion tax increase passed in December 2003 by the General Assembly and signed by Gov. Ed Rendell. Two weeks previous, the commonwealth also marked the first anniversary of the General Assembly’s passage of the governor’s multi-billion dollar “economic stimulus” borrowing plan. These two initiatives—cornerstones of Gov. Rendell’s “Plan for a New Pennsylvania”—represent the bulk of his effort to jump-start Pennsylvania’s lagging economy.
The “New Pennsylvania” has not come cheap for Pennsylvania taxpayers. Since the governor took office, the per capita cost of state government alone has increased by more than $1,800 per family of four—or 12.1 percent. But has paying more meant getting more in terms of jobs and economic opportunity? The answer is an emphatic “No.”
Despite all of the rhetoric about creating a “New Pennsylvania,” the commonwealth has retained its “old” position near the bottom of all states in terms of job, personal income, and population growth during the first half of Gov. Rendell’s tenure. And while Rendell Administration officials have touted their “economic stimulus” program as a success because Pennsylvania ranked 26th among the 50 states in 2004 (with 70,500 new jobs created), this statistic is much less impressive on closer examination.
Notably, the impact of Gov. Rendell’s 10 percent increase in the personal income tax (PIT) must be considered when evaluating Pennsylvania’s 2004 employment numbers. An estimated 33,140 jobs were not created in Pennsylvania as a result of the PIT increase, as calculated by the Commonwealth Foundation’s PA-STAMP computable general equilibrium (CGE) economic model. If the tax hike had not been enacted, Pennsylvania would have likely created 103,640 jobs in 2004—47 percent more than the actual figure—and would have ranked 19th in the nation in job creation last year, rather than in the bottom half in the country.
Furthermore, when the commonwealth’s 2003 loss of 33,600 jobs is taken into account, the final result is that Pennsylvania ranked 38th among the 50 states in employment growth between 2002 and 2004, with a job creation rate 62 percent below the national average.
Even worse news for Pennsylvanians is that the continued sub-par job creation seen under Gov. Rendell has been accompanied by lagging wage growth. Between 2002 and 2004, Pennsylvania’s personal income growth rate ranked 41st among the 50 states—falling 10 percent below the national average.
And given the state’s failure to produce enough jobs that provide incomes growing at the rate of its national peers, it isn’t surprising that Pennsylvania’s population growth rate has remained anchored at the bottom of the national chart during the Rendell Administration—rising just 0.6 percent between 2002 and 2004, a rate 70 percent below the national rate.
Making customers pay more for less is a surefire recipe for business failure—and Pennsylvania’s experience under Gov. Rendell (and his predecessors of both parties) is proof that it’s a losing strategy for state government as well. In this case, the state’s “customers”—its taxpaying families and businesses—are increasingly choosing to live, work and invest in states in which government is less intrusive and less costly. Many of those states have taken the sensible step of placing strict limits on government’s ability to tax and spend—and such states have economically outpaced their counterparts without such limits.
One of those states is Colorado, whose voters in 1992 approved a “Taxpayer Bill of Rights” (TABOR) that limits state and local spending increases to the combined rates of inflation and population growth. Since that time, Colorado state government spending growth has been limited to that rate, while its economic growth has far outpaced that of states with weaker or no spending limits—states like Pennsylvania. This success has inspired Pennsylvania State Senate Majority Leader Chip Brightbill to propose the “Taxpayer Fairness Act,” which would put taxpayers first in budget discussions by limiting government spending increases to citizens’ ability to pay, and help to rid Pennsylvania of the mindset that a growing government equals a growing economy.
Sadly for the many Pennsylvanians who had high hopes for Gov. Rendell’s “New Pennsylvania,” it turns out that the results under the new boss aren’t much different than those achieved under the commonwealth’s old boss(es). This April—with budget season in full swing in Harrisburg—state taxpayers should resolve to make sure they don’t get fooled again.
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Grant R. Gulibon is Senior Policy Analyst with the Commonwealth Foundation, a non-partisan, non-profit research and educational institute located at the foot of the Capitol in Harrisburg.