PA’s Perilous Predicament

Member Group : Allegheny Institute

The normal rite of spring known as the budget battle in Harrisburg is fast becoming a struggle for the future of Pennsylvania. As a result of the serious recession and declining revenue the state must deal with a large deficit in the current fiscal year and figure out what to do about the upcoming fiscal year slated to start July 1. The Republican controlled Senate has passed a plan that holds total expenditures at the current fiscal year level by using Federal stimulus money and outlay reductions to fill the hole created by next year’s projected revenue decline.

Democrats, led by the Governor, are outraged and want to raise taxes, including a 16.3 percent jump in the personal income tax from 3.07 to 3.57 percent. An increase the Governor says will bring in $1.5 billion. Of course that projection is optimistic and ignores any of the negative economic effects the tax increase might create.

But here’s the real outrage. The Governor wants to raise taxes so that spending on education can be boosted and economic development funds can continue to be handed out at the level of previous years. Therein lies the potential turning point for Pennsylvania.

First of all, in a time of deep and prolonged recession, talk of taking away more of the disposable income of the working public flips economics on its head. Especially when the money is going to promote economic development programs that have yet to produce anything approaching the payoff they promise. Far better to let the people keep their money to spend and invest as they see fit. After all, the Federal government has thrown caution to the winds as far as fiscal stimulus, financial bailouts and expansionist monetary policy are concerned. Pennsylvania will not show much improvement until a significant national recovery gets underway. And the Commonwealth will only hurt itself by levying higher taxes now.

Secondly, it is beyond preposterous that no state official has gone to the public sector unions—especially teachers—and asked them to voluntarily help the state and school districts by foregoing this year’s pay increase. This group, more than any other, has benefited from state laws giving them excessive bargaining power (including the right to strike) and protecting them from layoffs even in times of severe financial hardship for school districts and the Commonwealth. They ought to be asked to provide some help. Their raises can be restored when the financial picture improves.

For the state to be looking to expand spending for any category where help can be obtained is ludicrous. But to propose raising taxes to increase such expenditures is beyond folly, it is self-destructive. Little wonder Pennsylvania was the third slowest growing state over the last 40 years. It might relinquish that title over the next ten years as places such as California and Michigan—with their even more economy destroying policies—take over Pennsylvania’s spot. But make no mistake, what Pennsylvania does now will determine whether it remains in the economic slow lane or begins to enact changes that will lift the state to a brighter future.

Jake Haulk, Ph.D., President
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