As I write this in mid-September, Pennsylvania is without a final budget. In the past decade, we’ve had on-time budgets in only four years. The question is why? For a very long time I’ve been arguing that our deficits, along with our budget stalemates, are predictable given the lack of growth in the Pennsylvania economy. If Pennsylvania is ever to solve our state budget woes, it is essential that we focus on our state’s economic growth.
Over the years, I’ve suggested to my legislative colleagues that governments do not create a strong economy, we enable (or hamper) economy. Governments enable economies to prosper only if there are sound, reasonable, and effective tax and regulatory policies. Pennsylvania suffers in these two, but most especially in the area of tax policies.
Pennsylvania has the most oppressive business tax structure in the nation. Some will argue that businesses should pay more, but the larger question is how are jobs created? They are created primarily through businesses. Where do most of our citizens earn a living? They work for a business. Therefore, it stands to reason that we all benefit if businesses can perform more effectively and provide new and better paying jobs.
So often we seek to punish businesses because it seems to be the political thing to do. But at the end of the day, by punishing businesses, we also punish residents — the taxpayers. That doesn’t seem right to me.
In the 1950s, Pennsylvania had the fifth largest economy in the world. Of course, a great deal of that came from what were known as “smoke stack” industries … steel, coal, railroads, textiles, etc. These were family sustaining jobs and incomes. Over time, we witnessed the demise of each of these industries. Tax rates were increased on the remaining businesses so that our state budget could compensate for the loss of this tax revenue.
No one immediately noticed that too few new businesses were coming to Pennsylvania to fill the voids left by the departing/declining companies. Meanwhile economically stronger states were offering tax incentives to new businesses and Pennsylvania was left with legacy costs and increasing business taxes.
Fewer employers were coming to Pennsylvania and our state government was left with increasing costs due to inflation, federal unfunded mandates, and state government expansion — with stagnant tax growth.
Don’t get me wrong, we have new industry growing in Pennsylvania … especially the Life Sciences industry. Yet, we need to attract more. Pennsylvania is growing the Life Sciences industry, but at the same time, a neighboring state has issued a bond for $500 million to spend on attracting life science companies. The field isn’t level, nor will it be any time soon. But Pennsylvania needs to think about our long term growth, our future, and we must plan positively without again damaging more industry and thus create more of a revenue problem for ourselves each year in the future.
It’s time for Pennsylvania to plan for the future and stop planning for only today. We must concentrate on expanding our state’s economy to benefit all of us; and, the best place to start is with business tax policies. We’ve gone from the fifth largest economy in the world to the most business oppressive tax structure in the U.S. Due to this, we have, and will continue to have, recurring budget woes.
State Sen. Bob Mensch is a Republican who represents the 24th Senatorial District in parts of Berks, Bucks and Montgomery counties.