Will More Government Spending Stimulate the Economy?

Member Group : Commonwealth Foundation

Over the past eight years, federal, state, and local government spending increased from 30% of U.S. GDP to 35%. Economists warn that when government spending exceeds 25% of GDP, it hampers economic growth. Indeed, if spending taxpayer money was the path to economic success, we would be thriving today rather than just surviving. Yet despite all the good intentions and well-meaning economic development programs, Pennsylvania is Exhibit A that politicians cannot spend our state to prosperity.

Over the years—under both Democrat and Republican governors—Pennsylvania has spent more money on so-called economic development than most states. State spending has increased 36% under Rendell and Pennsylvania ranks second to Ohio in "economic development" spending.

But despite all this "economic development" spending, Pennsylvania continues to lag the nation in economic growth and state economic rankings, while losing residents to other states. Under Gov. Rendell (2003-2008), Pennsylvania ranks 34th in job growth, 40th in personal income growth, and 43rd in population growth among the 50 states.

In fact, in a recent analysis, the Commonwealth Foundation found that states spending the most on "economic development" had slower economic growth than states spending the least, and states with lower taxes had stronger economic growth.

Government has no money of its own to spend. To be able to distribute "economic development handouts" to politically selected companies, government must first take it from taxpayers. Yet taxing all businesses and individuals to give taxpayer-funded gifts to a select few is like splashing water across a pool—it won’t make the pool any larger.

Take the case of Harley-Davidson in York. They were awarded over $4 million from state taxpayers since 2000, but are now threatening to leave the state, citing the cost of remaining in Pennsylvania. Harley-Davidson and many others cases point to the failure of economic development spending to improve Pennsylvania’s economy.

There is evidence, however, that state economies can thrive when governments recognize they are incompetent to create jobs or stimulate the economy through spending taxpayer money. Indeed, states do much better when they rely upon citizens in the private sector to make economic decisions rather than politicians in the state capitol.

A Commonwealth Foundation analysis of the 50 states shows that those with the lowest tax burdens and that cut taxes the most had much faster economic growth than states like Pennsylvania with high (and rising) tax burdens.

The State could better guarantee the health of the economy by removing its interference from the process and allowing entrepreneurs to do what they are best able to do—create jobs and generate wealth.

For more facts visit PleaseNoMoreTaxes.org.

: : :

Spending Tip: Eliminate Corporate Welfare

In 1996, the Pennsylvania Legislature enacted the Opportunity Grant Program. This program was deemed an important and valuable tool for economic development. The state would allocate funds to politically selected companies who would in turn create more jobs for the state. Between 2000 and 2005 the Opportunity Grant Program was expected to create 300,000 jobs.

The Opportunity Grant Program has failed miserably. Only 170,000 new jobs were created or retained because of the grants. That is less than 60% of the original goal. Many of the companies that failed to meet the goals set by the state simply shut down or relocated out of the state. From 2000-2005, the state waived repayments from companies that have totaled more than $49 million.

Even the number of jobs supposedly "created" by the Opportunity Grant Program are suspect, as they are simply self-reported by the recipients of corporate welfare, and don’t account for what firms would have done without the grants. More importantly, these "job creation" programs fail to account for how many jobs are destroyed by the higher taxes needed to pay for them.

For more Spending Tips, read the full report, Government on a Diet: Spending Tips 2009, or visit PleaseNoMoreTaxes.org.

: : :

Get Involved
• Email your legislators.
• Learn the facts about Pennsylvania’s fiscal mismanagement.
• Become a 10-Minute Citizen.
• Send a video message to the Governor.
• Sign an e-petition to Gov. Rendell and the Legislature to eliminate waste and cut taxes.
• Receive a bumper sticker bearing the rallying cry Please, No More Taxes!
• Enter a video contest worth $4000 in prizes. Recent video submissions are available at YouTube.com/Group/NoMoreTaxes. Full contest details are available at PleaseNoMoreTaxes.org.
: : :

PleaseNoMoreTaxes.org is a project of the Commonwealth Foundation, www.commonwealthfoundation.org.