Wolf Spending Plan Is a Big Win for Competitor States

Governor Tom Wolf’s budget proposal offers little to encourage growth in Pennsylvania. As President Pro Tempore Joe Scarnati (R-Jefferson) said after the governor’s address, this budget does nothing to help Pennsylvania avoid getting stuck on the sidelines when the “wave of economic growth hits from the changes in federal tax law.”

Outside of some workforce proposals, it’s a budget that will keep us stuck near the bottom among states in a ranking of fiscal health, and near the top for our paternalistic approach to taxes and regulations, as shown by two recent studies from the Mercatus Center at George Mason University.  Pennsylvania is a nanny state and, under the Wolf budget, Harrisburg still knows best.

As soon as the governor removed his celebratory Philadelphia Eagles hat and started in on the minimal substance of his budget address on Tuesday, the party in the House chamber was over. His spending plan is essentially the same as in prior years, minus the across-the-board massive tax increase requests that have already been rejected by the General Assembly. And he sprinkled his talk, as he has in past years, with some curious claims of accomplishments.

He again asked for a sharp increase in spending – over $1 billion – paid for with higher taxes and fees. His pitch to lawmakers included some mind-bending logic surrounding a request for a severance tax on drilling, and chest pounding over achievements in Harrisburg set in motion before he was even a candidate for office.

In the reaction to the plan, the legislative leaders said tax increases were out of the question and the governor’s spending number would have to come down – a response applauded by PMA President & CEO David N. Taylor.

“The Pennsylvania economy is finally poised for growth and Governor Wolf rolls out a budget that would shut the door on it,” Taylor said. “Tom Wolf’s plan is an entire menu of bad ideas: energy taxes that will stifle investment and kill jobs, a combined reporting scheme that will increase compliance costs without raising revenues, and an edict from the Department of Revenue that will uniquely disadvantage Pennsylvania at the very moment when trillions of dollars are about to be reinvested in the United States. The leaders are correct: This is no time to talk tax increases and exorbitant spending.”

The governor tried to sell his severance tax on Pennsylvania energy companies on the dubious assertion that without one we are instead paying the energy taxes imposed by other states on their energy companies. And he yet again stated, as he has in prior arguments for the severance tax, that Pennsylvania is the only energy rich state that doesn’t tax its oil and gas companies. Never mind the $1.2 billion the industry has paid to local Pennsylvania communities since 2012 through the Natural Gas Impact Fee, which has benefited all 67 counties.

In his speech, the governor also took credit for killing off the Capital Stock & Franchise Tax (CSFT). While the CSFT did finally expire on his watch, its often-delayed phase-out began all the way back in 1999. To complete the CSFT phase-out, all Governor Wolf did was nothing – and it was a year in which he couldn’t have done anything if he wanted to because there was no tax code to approve or veto.

Additionally, he took credit for investing in our roads and bridges when the additional funding for that came from a wholesale gasoline tax increase signed by his predecessor Governor Tom Corbett.

The election year budget address aside, Pennsylvania is in real danger as Senator Scarlatti said, of being on the sidelines when the economic wave hits.

Looking at five categories of solvency the Mercatus Center places us all the way down at 45th in a ranking of states. And our high nanny state designation shows that we favor increasing revenue not by clearing the way for people to earn more, but by squeezing more out of people and nudging them to change their habits and behavior.

Todd Nesbit, Economics Professor at Ball State University, and one of two authors of Mercatus’ “For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century,” said that Pennsylvania and other states are increasingly relying on taxes and other policies that manipulate behavior for their revenue.

From 1997 to 2014, state revenue from selective taxes, including the elimination of certain exemptions, has increased 176 percent. Over the same time state expenditures have increased accordingly.

“What’s missing from all this,” Nesbit said, “is a complete look at all the costs and all the benefits of these policies.”

Overall, the authors looked at three categories of taxes and regulation to arrive at their paternalism rankings.

“We looked at the use of taxes on tobacco and alcohol and the other sin taxes, and we looked at what we call saint taxes, that exempt taxes for purchases of healthy items or items supposedly good for the environment, and the use of bans and regulations, like banning the use of plastic grocery bags,” Nesbit said.  

Pennsylvania placed 38th in the “Freedom from Paternalism” ranking.

Regarding our fiscal health, we are just a few bad policy decisions away from states like Illinois, which is teetering on junk bond status and last year had the highest outmigration rate of any state in the country, and New York. The budget proposed by the Governor is more of the same, only adding weight towards this tipping point.

“The new Trump tax law is helping with our recruiting,” Kelly Smallridge of Palm Beach County’s Business Board told the New York Post. “New York is taxing the rich, but Palm Beach is rolling out the red carpet.”

Wolf’s policy agenda for Pennsylvania likewise fits very nicely with Florida’s plan for economic growth.  Pennsylvania policymakers must make it the smart business decision for employers to locate, expand, and hire here rather than in one of our competitor states. This means we must restrain state spending, enact pro-growth business tax relief, limit lawsuit abuse, improve the regulatory climate, and ensure we have a trained workforce. Our state government cannot tax-and-spend the way to good fortune for all; but we can grow the private sector by earning new business investments and expanding the tax base, which is the source of lasting prosperity.