In order to eliminate a projected shortfall of at least $500 million in the General Fund, Governor Rendell has proposed a $29 billion budget for 2010-11 that increases business taxes, imposes new taxes on natural gas and tobacco products, and expands the sales tax to include many goods and services currently exempt.
 
With Pennsylvania, like the rest of the country, still facing one of the toughest economies in decades, state politicians should be working to relieve the financial burden on cash-strapped families and pursuing policies that encourage, rather than discourage, economic activity and investment!

Pennsylvania already has the highest Corporate Net Income Tax rate in the world, at 41.5 percent (when both federal and state taxes are counted).  As a result, the state ranks 45th in the nation in job growth since 1990.  The governor’s proposal for combined reporting of taxable income by corporations and their subsidiaries, regardless of whether they have operations in Pennsylvania, will only further burden businesses, discouraging local investment and driving employers and jobs to other states.

One area of growth for the state economy has been the natural gas industry, which had created an estimated 29,000 jobs by 2008 and is projected to generate another 98,000 jobs in 2010.  However, the governor’s proposed severance tax on natural gas companies -- which already pay Pennsylvania's Corporate Net Income Tax, Capital Stock and Franchise Tax, leasing fees, and royalty payments -- would discourage further investment in this boom industry, reducing in-state drilling activity by at least 30 percent, according to one estimate.

While Governor Rendell’s budget proposes reducing the Sales and Use Tax rate from 6 to 4 percent, it would expand the tax to cover a whole host of new goods and services, including advertising, truck transportation, and business services, with the net effect that Pennsylvanians would pay an estimated $531 million more in sales taxes next fiscal year.

What’s more, the governor’s proposed taxes on smokeless tobacco and cigars will not only hurt Pennsylvania’s small tobacco farmers, another growth industry, these taxes are also unlikely to hit projected revenue targets.  Of the 57 excise tax increases that states implemented between 2003 and 2007, only 16 met or exceeded revenue targets.  As just one example, when New Jersey increased its cigarette excise tax in 2006, instead of gaining a projected $30 million in revenue, the state lost more than $22 million, as smokers moved to purchase cigarettes across state lines, or through untaxed or lower-tax venues, such as Native American territories and the Internet.

In addition, tobacco taxes are regressive, disproportionately impacting the poor and those living on fixed incomes.  With many Pennsylvanians struggling to make ends meet, no taxpayer -- particularly not those most disadvantaged -- should be forced to hand over more of his or her hard-earned money to the government!

Governor Rendell has proposed massive spending increases in each of his budgets, usually requiring new or higher taxes, while state lawmakers have consistently splurged in “good” years, making them unprepared for economic downturns.

Citizens Against Government Waste’s and The Commonwealth Foundation for Public Policy Alternatives’ 2006 Pennsylvania Piglet Book identified $8 billion in potential savings over two years from the elimination of inefficient, duplicative, and extravagant spending -- more than enough to balance the budget.  The Pennsylvania Senate’s newly approved bipartisan spending cuts commission should adopt the Piglet Book’s recommendations, and Governor Rendell and state legislators should follow the example of households across the country in these tough economic times by eliminating such wasteful and non-essential spending.