by Lowman S. Henry | January 15, 2008

Can the legislature finally deliver?

Cutting taxes is always popular, especially in an election year. And, with Pennsylvania’s General Assembly having accomplished virtually nothing in the past twelve months, a tax cut or two would play especially well with the voters back home.

It doesn’t hurt that state government is rolling in your dough. Pennsylvania appears on track to collect at least $650 million more in tax revenue than was projected for the 2007-2008 fiscal year. That has spending interests licking their chops, and given tax cut proponents some serious ammunition.

The first shot in the tax cut battle was fired by State Representative Thomas Quigley (R-Montgomery) who used the occasion of a House Republican Policy Committee meeting to propose a two-phase reduction in the state’s personal income tax. Quigley told the Harrisburg Patriot-News it is time to “let Pennsylvanians keep more of their own money.” Also supporting a cut in the personal income tax is state senate President Pro Tempore Joe Scarnati (R-Jefferson), which could give the idea some serious traction.

Quigley’s plan is to cut the personal income tax rate from the current 3.07 percent to 2.93 percent for the fiscal year beginning July 1st. Then, a second reduction would kick in on July 1, 2009 when the rate would drop to 2.8%.

Any tax cut, of course would be good news for Pennsylvania’s beleaguered taxpayers. This is not just because less of our money would be taken from our paychecks, but also because lower taxes mean more of us will have paychecks. Using a rather complicated tax analysis computer modeling system, the Commonwealth Foundation estimates that the last increase in the Personal Income Tax from 2.8% to 3.07% in 2004 resulted in nearly 36,000 fewer jobs being created. That means 36,000 Pennsylvanians who are not employed today would be if the tax hike had not occurred. Matthew Brouillette of the Commonwealth Foundation points out that “cutting taxes triggers job growth.”

But cutting the personal income tax rate alone will not get the job done. For Pennsylvania to become truly competitive with other states when it comes to retaining and attracting new jobs there must also be changes in the state’s business tax structure. Pennsylvania’s corporate net income tax is high relative to most other states. As Mr. Brouillette pointed out in testimony before the policy committee “It doesn’t take a PhD in Economics to understand that when government wants less of something, it taxes it.” Higher taxes on job creators mean they will create fewer jobs. Who wouldn’t locate their business in another state if they can do the exact same thing and make more money simply because they are paying lower taxes?

And then there is the matter of property taxes. The Lincoln Institute of Public Opinion Research has been polling Pennsylvanians on the subject of taxes for fifteen years. In poll after poll voters have said that property taxes are the most unfair and onerous of all taxes. There has been some minor property tax relief, largely for lower income senior citizens, as a result of gambling tax revenue. But no systemic broad-based reform or relief has been enacted.

One year ago a new legislature took office in Harrisburg. With a historic number of new members the word of the day under the capitol dome was reform. High on the list of promised action was property tax reform. It hasn’t happened. On the flip side of the coin – limiting spending – no action has been taken to enact a Taxpayer Protection Amendment to limit future state spending increases to the rate of inflation plus population growth.

All this adds up to one giant failure on the part of the General Assembly to deliver. With primary elections just three months away the time is ripe for tax cuts, tax reforms, and implementing spending limits. If it doesn’t happen now, it could be many years – if ever – before it does.