Pennsylvanias Unlimited Government Equals Limited Economic Growth

In a few months, the tumultuous 2005-06 session of the Pennsylvania General Assembly will come to a close—and will likely do so without further action on the “Taxpayer Fairness Act,” a bill designed to place a common-sense limit on how much state General Fund expenditures can increase each year.

The effort to enact a spending limitation seemed promising, as it first passed the House and then the Senate (where amendments improved it) in November 2005. It has since languished in committee at the mercy of House leadership. To add insult to injury—as well as a dose of hypocrisy—nine state senators and 41 representatives who voted for spending limits last November proceeded to “vote against them” in July 2006 by approving a General Fund budget that increased spending at a rate more than twice the limit embodied in the “Taxpayer Fairness Act.”

The difficulty in maneuvering a spending limitation through Pennsylvania’s legislative minefield is disappointing, but not surprising. The opposition to even a hint of spending restraint by the vast array of interest groups who depend on a steady flow of taxpayer dollars is strong and well funded (in many cases, by those same taxpayer dollars). And politicians from both parties can’t shake their proclivity to spend every dollar that flows into Harrisburg. Many of the opponents of spending limits argue that Pennsylvanians are not overtaxed, and that any attempt to slow the growth of government will require eliminating vital public services upon which many state residents depend. They also spread the myth that similar measures in other states have caused fiscal and economic catastrophes.

Despite the disinformation campaign against spending limits, there is growing recognition among Pennsylvanians whose noses are not plunged in the public trough that the state cannot continue its free-spending ways and compete effectively with other states for jobs and economic opportunity. Indeed, the fiscal and economic evidence of the past three and one-half decades demonstrates that as state and local taxes and spending soak up an increasing portion of Pennsylvanians’ paychecks, the state’s economic performance has lagged behind the rest of the nation.

A June 2006 report from the Washington, D.C.-based Tax Foundation revealed that between 1970 and 2006, Pennsylvania’s state and local tax burden increased by 20.2%—the 9th largest increase among the 50 states. These figures suggest that Pennsylvania certainly had robust government growth during that time—but what about economic growth?

Unfortunately, Pennsylvania was mired at the bottom of the national chart in terms of employment growth (49th among the 50 states from 1970 to July 2006), population growth (47th among the 50 states between 1970 and 2005), and personal income growth (45th among the 50 states from the first quarter of 1970 to the first quarter of 2006). When the performance of Pennsylvania and the other 9 states with the largest increases in their state and local tax burdens is contrasted with that of the 10 states with the largest decreases between 1970 and 2006, the economic case for fiscal restraint is clear:

• The 10 states with the largest increases in their state-local tax burdens had a cumulative employment growth rate of 53.7% between 1970 and July 2006. The 10 states with the largest decreases in their state-local tax burdens had a cumulative employment growth rate of 193%.
• The 10 states with the largest state-local tax burden increases had a cumulative 1970-2005 population growth rate of 18.3%. The corresponding growth rate in the 10 states with the largest state-local tax burden decreases was 88.8%.
• From the first quarter of 1970 through the first quarter of 2006, the 10 states with the largest state-local tax burden increases had a cumulative personal income growth rate of 978.3%, while the 10 states with the largest state-local tax burden decreases had a cumulative personal income growth rate of 1,589.9%.

Recently, a flood of self-congratulatory press releases has gushed forth from state government public relations offices, touting national surveys declaring that the Commonwealth now ranks somewhere in the middle of the pack—or better—as a business location. Yet Pennsylvania’s economic performance comports not with these seemingly glowing assessments, but with that of Forbes magazine, which in August ranked Pennsylvania as the 10th worst state to do business in the United States (and 7th-worst on the “growth prospects” sub-section of that rating).

Our recent fiscal and economic history demonstrates the axiom: “You can have government growth or you can have economic growth, but you can’t have both.” The failure to limit government growth is one of the main reasons that when the next session of the General Assembly convenes, many new faces will dot each chamber. Hopefully, those new members will recognize the importance of prompt action on a constitutional amendment to limit state spending growth to unleash Pennsylvania’s economy from middle of the pack, at best, to a leader among states.

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Grant R. Gulibon is a Fellow with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, non-profit public policy research and educational institute located in Harrisburg, PA.