Pennsylvania’s fiscal year began July 1, but by month’s end there was no budget agreement, prompting Gov. Ed Rendell (D) to promise he would begin secret negotiations with state legislative leaders.
Rendell’s management of the budget crisis has come under withering fire, including from former union allies of the governor, who have held protests against him in the state capital, Harrisburg. Since June, state workers have received only partial wage payments. Independent budget analysts also have criticized Rendell’s management.
Wants Big Tax Hike
Rendell wants to raise Pennsylvania’s income tax rate by 16 percent, a proposal that is deeply unpopular among citizens and businesspeople.
“Every year under Gov. Rendell, the state legislature has missed their budget deadline into the next fiscal year,” said Nate Benefield, a budget and tax analyst at the Commonwealth Foundation, a Harrisburg-based think tank. “Today, even the unions are getting angry at him and his handling of this budget. The AFL-CIO, one of the nation’s largest unions, is taking him to task for barely paying state workers.”
Unions Split Over Budget
“He is using the unions as pawns in this budget battle, but they have turned on him,” Benefield said. “Indeed, now it is union against union. The teachers union is staying with Gov. Rendell and pushing for Rendell’s income tax increase proposal, and they want more spending on education, but a lot of the state employee unions just want to get paid and do not care about the proposed state income tax increase.
“It’s ‘just desserts’ for Rendell, and now his approval ratings are dropping,” Benefield added. “Most Pennsylvania voters are blaming him for the budget impasse [and] are angry at him for pushing this income tax increase, which really should have been dead in the water months ago.”
Would Harm ‘Good System’
Curtis Dubay, a tax researcher at The Heritage Foundation in Washington, DC, worries about the effect an income tax increase would have on Pennsylvania.
“Pennsylvania has a very good income tax system,” Dubay said. “Their income tax rate is barely over 3 percent, and it is a flat rate. But that tantalizing low rate is targeted often by lawmakers, and now by Gov. Rendell again, who is looking to bring in more money.
“Of course, he says the rate is so low, it’s not really an issue,” Dubay added. “But of course that is not true. Raising taxes does not balance budgets, because the new money gets spent. Raising taxes right now is absolutely the wrong thing for any state. We can’t afford paying more taxes right now.”
Dubay notes Rendell already has raised the state’s income tax rate.
“In 2004 Rendell increased the income tax rate from 2.8 percent to the current 3 percent, but look at where Pennsylvania is again: right back in deficit. Rendell’s budget should focus on restraining spending, not raising taxes,” Dubay said.
Would Lose Good Feature
Joseph Henchman, director of state projects at the Tax Foundation, notes if Rendell succeeds in raising Pennsylvania’s income tax rate the state will lose one of its most alluring tax features.
“Pennsylvania’s [overall] tax burden is the 11th highest nationally. Additionally, Pennsylvania’s property tax system is the fourth worst in the country. Business taxes rank 10th worst, but their income tax rate is the nation’s 12th best. It’s their one bright spot, and Gov. Rendell in his proposed budget wants to ruin it,” Henchman said.
Pennsylvania political consultant Charlie Gerow believes Rendell should back away from increasing taxes.
“Unfortunately, Gov. Rendell has never met a tax he did not want to raise,” Gerow said. “Because Republicans do not want to raise taxes, and the governor does, the negotiations are stalled. The governor needs to find ways to seriously reduce spending, if he wants a budget.
“The thing that is most important to point out about Gov. Rendell’s management of the budget crisis is that he has been around long enough to know that raising taxes in a bad economy is bad policy,” Gerow concluded.
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.
Thomas Cheplick, a freelance reporter for The Heartland Institute, writes from Cambridge, Massachusetts.
