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"We refuse to
learn from history, and we're determined to repeat it!"
Grant
R. Gulibon
For the second time in a little more than a decade, Pennsylvania
politicians are poised to make sure that the Commonwealth misses out on
a developing economic boom by passing another tax and spending increase
just as the economy shows signs of recovery.
In 1991, Pennsylvania lawmakers, working past a budget deadline as a
national recession was ending, approved a multi-billion dollar tax
increase--including a hike in the personal income tax (PIT) and a slew
of business tax increases. The "need" for more tax revenue was used to
justify billions of new tax dollars to close a deficit (instead of
reducing spending) and pay for new programs. Sound familiar?
But the story of the 1991 tax hike didn't end with the General
Assembly's vote and the governor's signature. Over the 12 years since,
during a time that included a robust nationwide economic expansion,
Pennsylvania's economic performance consistently lagged behind. Today,
some of those who voted for the '91 tax increase now view that action as
one of the major reasons for the state's poor performance in the
following years.
In terms of the major economic growth indicators, Pennsylvania
underperformed relative to the national average, despite massive
taxpayer-funded "investments" in state economic development subsidy
programs and some half-hearted efforts to reverse some of the 1991 tax
increases.
Fast-forward to the present day. Less than two weeks after Democratic
Gov. Rendell and Republican Speaker Perzel pushed a billion dollar tax
and fee increase through the House, the U.S. Commerce Department
announced that the national economy grew at an annual rate of 7.2
percent for the third quarter of 2003--the fastest growth rate since
1984. This robust increase comes hard on the heels of federal income
tax cuts, enacted this year and made retroactive to January 1, that many
economists argue have stimulated strong gains in consumer spending and
business investment.
But the good news doesn't end there. One day after the Commerce
Department's encouraging report, the Pennsylvania Department of Revenue
released data on its October 2003 collections. It turns out that for
the first four months of the 2003-04 fiscal year, General Fund revenues
are nearly $240 million ahead of this year's estimate. If revenue
growth continues at its current pace, Pennsylvania state government will
have approximately $720 million more than expected in its coffers by the
end of this fiscal year. Such a sum would put a fairly large dent in
any anticipated budget deficit and obviate the "need" for a tax increase
of any size--and a state tax cut would likely replicate the economic
success seen at the federal level, thus spurring even stronger tax
revenue growth.
This news of economic expansion following tax cuts and
better-than-expected state revenue growth undoubtedly comes as a
surprise to Gov. Rendell, who dismissively claimed this past January
that "There's been no evidence in my lifetime that 'trickle-down'
economics works"--ignoring the strong, sustained growth that followed
the Kennedy tax cuts of the 1960s and the Reagan tax cuts of the 1980s.
Meanwhile, the Governor's budget director rushed to put a negative spin
on the revenue numbers, saying that the strong recent nationwide growth
may not be "sustainable."
Of course, if Gov. Rendell and his top staffers get their way, their
comments about a continued Pennsylvania economic slump will become a
self-fulfilling prophecy. Those comments also illustrate their failure
to understand the economic damage that tax increases caused in the 1990s
and will likely cause in the years to come, if passed by the Senate.
A recent Commonwealth Foundation analysis illustrates just how much harm the
Rendell-backed House tax hike vote would produce in Pennsylvania. The PA-STAMP
"computable general equilibrium" economic model, developed by Ph. D. economists
at the Boston-based Beacon Hill Institute at Suffolk University, estimates that
raising the Pennsylvania PIT from 2.8 percent to 3.1 percent will destroy 35,892
jobs in the state and reduce investment, personal income, and disposable income
by $77.38 million, $298 million, and $1.46 billion, respectively. These results
are
consistent with the bitter economic legacy of the 1991 tax hike.
A noted philosopher once said, "Those who do not learn from history are
doomed to repeat it." Yet while many Pennsylvania Senators appear to
have learned from history, Gov. Rendell and his House accomplices have
demonstrated they are determined to repeat it.
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Grant R. Gulibon is senior policy analyst at The Commonwealth
Foundation, a free-market public policy research and educational
institute based in Harrisburg. For more information, visit
www.CommonwealthFoundation.org.
CONTACT: Grant R. Gulibon, 717.671.1901
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