by Lowman S. Henry | March 24, 2008

Times demand PA take a new approach to taxing and spending

The economic news over the past few weeks has been almost all bad. Record high oil prices, a declining dollar, the collapse of financial giant Bear Stearns. Not only has the economy been rocked by one problem after another, but there are more ominous storm clouds on the horizon.

Meanwhile on the banks of the Susquehanna, the Pennsylvania General Assembly is hard at work trying to create more government spending programs. Democrats are moving forward with plans to socialize health care in the commonwealth. A wide array of spending initiatives for everything from education to highways fills the governor’s legislative agenda.

It is budget time in Harrisburg. But state budgets don’t exist in a vacuum. Trends in the national economy must be taken into consideration. So far, state government has not shifted gears. Given that average Pennsylvanians are coping with high gasoline and home heating prices, sluggish to non- existent job growth, and diminishing future prospects, the idea of enacting new, expensive government programs (which did not make fiscal sense in good times) is now downright folly.

No doubt we as individuals are going to have to tighten our belts. Should not government have to do the same? The debate in Harrisburg should shift from what new and expanded programs state government is going to impose to how can state government cut spending and lower taxes? Revenue has exceeded projections in recent years. Last year this allowed state spending to increase unfettered while taxes were not raised. Although the legislature deserves credit for having stopped Ed Rendell’s tax hike proposals cold, they did cave in on the spending side.

In the state House there is a coalition of conservative legislators who understand the times demand a new approach. House Republican Policy Chairman Michael Turzai (R-Allegheny) is advocating an “economic stimulus” package that relies on curbing spending, cutting taxes, and halting borrowing. Turzai points out that Pennsylvania’s efforts to tax and spend its way into prosperity have failed, yielding economic growth at a rate half of the national average. He wants to change the paradigm.

Given the fact the U.S. economy appears headed for recession, if in fact we are not already in one, it would be the height of fiscal irresponsibility for state government to continue acting as if all were well in the world and Pennsylvania’s fiscal health is immune to the current economic downturn. Since the Rendell Administration’s approach has failed in economic good times, it can hardly be expected to succeed during the tough times that lie ahead.

To that end, the Turzai-led legislators are suggesting a zero growth budget for the 2008-2009 fiscal year. They are proposing cutting a wide range of business and personal taxes. Significantly, they realize there is a third leg to the stool: they want to halt the governor’s profligate borrowing. Turzai points out that Rendell is calling for $4.37 billion in new borrowing in the proposed new budget. Repaying that “loan” would cost us and our children $6.8 billion when interest and other costs are added into the equation.

Turzai’s approach: holding the lid on spending and cutting taxes is a proven economic stimulus. Scott Hodge of the Tax Foundation reports that globally those nations with the lowest tax rates are the ones with the most rapidly growing economies. Ireland, for example has revived its economy by moving from a welfare state model to a low tax model. It has seen an economic resurgence. Unfortunately, compared to other nations, the United States has relatively high corporate taxes. Pennsylvania has the second highest corporate tax rate in the nation. Added together, this puts our economy at a disadvantage both nationally and globally.

It is time for a reality check in Harrisburg. Governor Ed Rendell is looking to cement his legacy by enacting high profile new spending programs. We can’t afford them. The governor’s approach has clearly failed. Given the rapidly declining national economy, it is an approach we can no longer afford to take. Representative Turzai offers both a reality check, and a roadmap to economic prosperity. It is a map that should be followed.