Pennsylvania Legislature Finishes Only Half of Budget Business

Published February 1, 2004

Although they did not get the property tax relief measure they were holding out for, the Pennsylvania House of Representatives nevertheless voted 104-89 on December 22 to approve $1 billion in new taxes to finance new programs and close a state budget deficit. The property tax measure had been promised as a way to offset the new tax burden.

The tax increases were included in a package of bills passed by the Senate on December 20. Governor Edward G. Rendell, a Democrat, signed the package on December 23, ending Pennsylvania’s distinction as the only state in the nation without a completed spending plan for the new fiscal year.

House members had insisted on property tax cuts as a tradeoff, but 11th-hour Senate negotiations over a proposal to provide property tax rebates funded by legalizing slot machines collapsed before the House vote.

Rendell said he had assurances from legislative leaders that resolving those differences would be a top priority when lawmakers returned to the capitol in January. “We will, I repeat, we will give people property tax relief,” he said.

The legislative package signed by Rendell calls for the state income tax rate to rise from 2.8 percent to 3.07 percent–an increase of nearly 10 percent–to raise an additional $729 million a year. A household with taxable annual income of $50,000 would owe $135 a year more in income taxes. The package also includes a 35 cents-per-pack boost in the $1 cigarette tax.

A Difficult Vote

Seventeen speakers, many of them Republicans who spoke against the bill, took the House floor before the body voted on the tax increase package.

Reps. Dave Reed (R-Indiana) and Jeff Coleman (R-Apollo) were among those who voted against the bill, while House Majority Leader Sam Smith (R-Punxsutawney) voted in favor.

Smith pointed out that Rendell first proposed raising the state personal income tax from the current 2.8 percent to 3.75 percent–a 34 percent increase. “In the end, we cut that increase by two-thirds, to just under 10 percent,” Smith wrote in a press release. “It was difficult,” he said after the vote. “I don’t take voting to raise people’s taxes lightly.”

Coleman’s vote against the package reflected his persistent opposition to any state tax increase. “It is the absolutely wrong direction for the state of Pennsylvania,” he warned.

Reed agreed, noting “I don’t think that this is a smart thing to do in this kind of economic year.” He said that although Pennsylvania’s economy had been expected to be poor in 2003, the state has “rebounded and seen a [turnaround] of more than $284 million.”

About one-third of the 108 Republicans supported the plan, but several GOP opponents said it represented excessive, unnecessary spending. “The state has been spending like a drunken sailor,” said Rep. Will Gabig ®-Cumberland). “As a sailor myself, I know we have been spending like drunken sailors.”

“The governor and his friends are about to take Pennsylvanians for another ride down the tax-and-spend expressway, a trip that will end in a destructive economic accident,” said Rep. Daryl Metcalfe (R-Butler). “The right choice is the choice of government living within its means.”

Democratic supporters said Rendell needed the tax increases in part to fix a $1.8 billion structural deficit he inherited. “This is not a pretty piece of legislation. … It’s ugly, but it’s necessary,” said Rep. P. Michael Sturla (D-Lancaster). “It’s time to acknowledge the structural deficit. I fully expect we will be back here in January, and maybe it will take until February, until we get property tax relief.”

“The people of my district say no to taxes, but yes to increased education funding,” said Rep. Curtis Thomas (D-Philadelphia). “This tax increase is not desired … but we can’t talk about having the best without talking about what we need to do to get it.”

Business Community Relieved

While stressing that much work remains to make the commonwealth’s business tax structure more conducive to job creation, the Pennsylvania Chamber of Business and Industry commended legislative leaders for resolving the budget dispute.

“Pennsylvania’s business community was braced for a tremendous hit early on in the budget process,” said Jim Welty, vice president of legislative and corporate affairs for the Pennsylvania Chamber. “Balancing the budget solely on the back of business, which already contends with a tax structure that is one of the most onerous and complex systems in the nation, would have had a disastrous impact on job creation and economic growth.”

Welty said the Chamber remains steadfast in its position that any new taxes on business or increases in existing business taxes are regressive and counter-productive to the economic recovery that appears to be at hand.

“We should be fostering business and job growth. Pennsylvania’s tax structure should be a selling point for new businesses to locate here and for existing companies to stay and grow,” he said. “Unfortunately, it has become a selling point other states can use to lure job opportunities away.”

Legislators Coleman and Reed said they were unhappy the House passed a tax hike without “any accompanying provisions for property tax reform.” Coleman noted Rendell had earlier promised that any increase in state taxes would be offset by a dollar-for-dollar reduction in local property taxes. “Note the tune has changed,” he said about Rendell’s willingness to look at a tax increase without accompanying reforms.

“What does a family that has lost a substantial amount of its income do in order to keep paying bills and buying groceries?” asked Jake Haulk, president of the Allegheny Institute for Public Policy, in a December 6, 2002 policy brief. “Most families in such a situation would finds ways to reduce their spending, postpone major purchases, eliminate frills, and generally tighten their belts until their financial picture improves. It seems logical and reasonable that state and local governments would do the same.”

“There were some disappointments,” acknowledged Rendell after the vote. “All of us regret that we couldn’t fulfill my promise to get property tax relief to the people. We will take up property tax relief first when we return in January.”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].

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