BY STEVE FORBES
For many states, July 1 marked the annual start of a new budget cycle, an occasion for heavy politicking and late night deliberations as the deadline approaches. This year, with the passage of Gov. Tom Corbett's $27.66 billion budget, the people of the commonwealth of Pennsylvania got an early taste of Independence Day.
Pennsylvanians can continue to celebrate freedom from the sort of thinking that sees endless expansion of government, runaway budget deficits financed with mountains of debt, and job-killing taxes as the norm. This is what has led states like California and Illinois to the brink of ruin and bankruptcy. As economist Herb Stein famously said, "If something cannot go on forever, it will stop."
Corbett's 2012-13 budget took a meaningful step -- a long needed one -- toward changing the culture of Pennsylvania government from tax and spend to policies that move in the direction of market-based investment and job creation, low taxes and limited government.
Pennsylvania passed a manufacturing tax credit -- with broad support from labor and business -- that will help create tens of thousands of jobs. This is aimed at Royal Dutch Shell PLC, which wants to build a multibillion-dollar processing plant in Beaver County, and other energy firms that want to participate in the state's natural gas boom. The Shell plant could create 10,000-20,000 jobs.
Under the budget, Pennsylvania's working families and businesses will not see their taxes go up. At the same time, the leviathan state government finally has been brought under control. Since Corbett took office in January 2011, filled staffing levels have been reduced by 1,400 positions, or nearly 2 percent, with an expected annual savings of $105 million. Those who thought they could run budget deficits endlessly and spend excessively are dealing with a new reality in the commonwealth.
At the same time, Corbett boosted spending in basic education to historic highs. In exchange for agreeing to hold tuition increases to a minimum, state schools saw their $1.58 billion in funding preserved. An innovative Educational Improvement Tax Credit program, where businesses can donate to private-school scholarships, was boosted to $100 million in credits annually. Now students in the state's lowest-performing institutions will have a way out and a chance to succeed in life. Much more needs to be done to reform K-12 education, but this is a helpful start.
An absolutely crucial element to getting Pennsylvania on the road to "a new industrial revolution" and the creation of good paying jobs is getting tax policies oriented in the same direction. Corbett knows that excessive taxation, driven by big government politicians who like having program funding to exchange for votes, will suffocate private initiative and investment. Pennsylvanians are already burdened with one of the country's highest combined state-local tax burdens. The result of that is too predictable. Between 1993 and 2008, the commonwealth saw more taxpayers leave the state than move into it every year but one, according to the Washington-based Tax Foundation. In the same time period, Pennsylvania lost $9.7 billion in net adjusted gross income.
If the state is to avoid an accelerating stampede for the exits by middle-class families, entrepreneurs and businesses of all sizes, what demographer Joel Kotkin has referred to as the "blue state exodus," it needs a tax code that incentivizes personal initiative and private investment -- the only sure path to prosperity.
Toward that end, Corbett has, in addition to holding the line on taxes for families and businesses, eliminated the death tax (politely known as the inheritance tax) on family farms and continues the phase out of the Capitol Stock and Franchise tax, a job- killing tax that hurts businesses in Pennsylvania.
These impressive achievements of Tom Corbett are heartening and create a foundation to achieve more such positive measures in the future. If he succeeds, and ignores those who will do everything in their power to push government toward the abyss of bankruptcy, the people of Pennsylvania will owe him their gratitude. As we've seen with the slow implosion of the Eurozone's welfare state, when it all starts to unravel -- as it eventually must -- the real suffering is felt by working families and business owners, not the lifetime politicians.
How bad is it? Today, the total unfunded liability of state and local pension funds nationwide is almost $5 trillion looking out over the next three decades. Unless we get our house in order and soon, we risk not only a fiscal catastrophe but a social nightmare.
Pennsylvania's policies should be emulated widely at the state level, especially in places like Illinois and California. And may we get Corbett-style fiscal discipline in Washington before it's too late.
STEVE FORBES is chairman and chief executive of Forbes, and editor-in-chief of Forbes magazine.