Lay Off the Private Sector with Public Sector Layoffs

Gov. Rendell is threatening once again to lay off state government employees if the General Assembly refuses to go along with his spend-more, tax-more budget proposals. But should the public sector be immune to the downsizing occurring in the private sector across the Commonwealth?

From the beginning of the “Great Recession” in December 2007 through April 2010, Pennsylvania’s private sector has shed over 281,000 jobs – an employment drop of more than 5.5%.  Yet during this same time, total state government employment has grown by 3.2% – or 5,000 more government jobs.

In addition, Gov. Rendell has pumped billions of dollars more into the government-run school system at the local level.  Where’s this money going?  Since 2000, statewide student enrollment has declined by nearly 27,000 students.  Yet the number of employees in the public school system has increased by almost 33,000 people.

This growth in public-sector employment-sustained only through higher taxation of the private-sector-is a recipe for economic stagnation, if not disaster.

Despite never really working in the private sector, even Gov. Rendell can understand that the public sector is dependent on a prosperous private sector-not the other way around.  So when businesses are shedding jobs, they are also reducing the amount of tax revenue government has to spend.  Yet Gov. Rendell and his union allies think businesses need to pay even more.

Indeed, they argue that “70% of corporations don’t pay Pennsylvania’s Corporate Net Income Tax”-which at 9.99% is the highest such tax rate in the nation-while conveniently ignoring that more than half of those businesses are unprofitable.

So while many companies are shedding jobs and not making any money-or are simply trying to keep their heads above the water line, Gov. Rendell wants to raise taxes.  Once again, he’s targeting some of the few industries in Pennsylvania that are prospering.  Although Big Tobacco (cigarette, cigar, and smokeless tobacco companies) and Big Gas (drilling companies) are already paying high business taxes, Rendell wants new and higher taxes on their products.

Basic economics teaches us that these big and small companies won’t pay higher taxes at all.  Some of the smaller ones-like many of Pennsylvania’s tobacco farmers-may go out of business altogether, but those companies that survive the increased costs of doing business will simply pass on those higher taxes to their employees and consumers.

In exchange for the millions of dollars in new tax revenue for politicians to spend in Harrisburg, businesses will either increase the prices of their products for consumers or reduce the number of jobs and benefits for employees.  In the case of Pennsylvania’s natural gas opportunities, drillers will simply invest millions of dollars in more hospitable states before venturing further into what would become one of the most onerous and financially punishing states to drill in.  Of course, even these “narrow” tax increases will cause a ripple effect that will be felt beyond those industries, as more people have fewer dollars to spend in order for Harrisburg to get more.

So instead of looking to raise taxes on an already struggling private sector, maybe it is time for Gov. Rendell to lay off some government-sector workers to balance his bloated budget.  If the state government workforce had shrunk at the same pace as Pennsylvania’s private sector, it would have shed 9,000 jobs instead of adding 5,000.  In other words, there should be 14,000 fewer jobs in state government today if the public sector had simply shared in the pain suffered by the private sector.

Since Gov. Rendell’s first late budget in 2003, state spending has increased at more than double the rate of inflation.  If the governor had simply kept his increases to the rate of inflation, Pennsylvania would be experiencing a revenue surplus today rather than another billion dollar shortfall.  Of course, leaving that money in the productive, job-creating private sector would have produced far more and far better jobs than government could have ever thought of “creating.”

Matthew J. Brouillette is president and CEO of the Commonwealth Foundation (www.CommonwealthFoundation.org), a public policy research and educational institute located in Harrisburg, PA.