MORE SPENDING, NO EFFICIENCIES, MORE TAXES
BUDGET WILL HASTEN THE ECONOMIC DECLINE OF STATE
Governor Wolf 's new budget for 2016-2017 is an escalation of the 2015-2016 budget that is still stalled in Harrisburg. The budget is $32.7 billion, a 9% increase over last year's budget, which has not yet been passed. It requires a sales tax of 6.6% and an income tax of 3.7%. This is a 10% increase in the sales tax and a 20% increase in the income tax. I would like to know how many of the states residents have had a 20% increase in their income? Pennsylvania is now rated as the tenth highest tax state in the country, it looks like the governor is shooting to be number one. He also wants to borrow $3 billion to help pay for the state pension fund, in an attempt to pass on this obligation to our children and grandchildren. PSERS reports that the contribution to the state teachers' pension this year is 30.03% of teachers salary. This pension fund has annually paid out 2.5 billion in excess of contributions and investment return for the last 5 years. These differences in the return on investment are made up by the taxpayers of the state. It is now unfunded by over $51 billion. You can see by the chart below the projected contribution by the school districts, this is assuming a 7.5% return. This return is highly unlikely and the reality will be much more. Borrowing money to subsidize the pension fund will not fix this problem, nor will raising taxes on the citizens.
If you look at the economic path this governor is charting, it is exactly the same kind of fiscal mismanagement that has led to the decline of cities like Detroit and that is also threatening many northeastern states. The policy is to not address unsustainable policies of the past. The most pressing unsustainable policy is the benefits of government workers, that are way out of line with the private sector. By raising taxes to try to accommodate public union workers, thus transferring money from the citizens to the government employees, leads to less business activity and then another round of tax increases to sustain the revenue. Pennsylvania's population has been stagnant for years. As this pattern continues, businesses continue to leave or not settle in the state, younger workers follow the job opportunities and lower taxes in the south and west. Public workers use their political power to ensure their benefits are maintained, then often retire to low tax states in the south and west. The population becomes older and less affluent, if this cycle is not broken the state will continue to decline until it reaches a tipping point that will be almost impossible to rescue. Pennsylvania had 30 US representatives in 1963, in 2013 it now has 18 seats and is due to loose 2 more US representatives in the future.
Raising the sales tax will create a disadvantage for the businesses located in the state. People have many more options to purchase items from other states without the tax. I see many empty stores in the area now - raising the sales tax will put the remaining stores at a further disadvantage. If state income declines due to less activity caused by the higher taxes, then the pattern is repeated to increase the taxes to sustain the revenues; this is a recipe for disaster. The legislature has attempted to break this cycle...it is resisted primarily by the government worker unions, who believe they deserve elite benefits compared to the rest of their neighbors. The Governor has now openly stated that there will not be any compromise on his budget and is willing to make the 2016 elections a referendum for higher taxes and elitist benefits for his political supporters. This is great gamble on the Governor's part, I believe there will be a brutal fight coming.
PROJECTED EMPLOYER CONTRIBUTION RATES AND TOTAL EMPLOYER CONTRIBUTIONS
*(Presumes a 7.5% rate of return)
|
||
Fiscal Year Ending June
|
Total Employer Contribution Rate %
|
Projected Total Employer Contribution
|
16/17
|
30.03
|
$4,068,765,000
|
17/18
|
32.04
|
$4,376,026,000
|
18/19
|
33.27
|
$4,662,017,000
|
19/20
|
34.20
|
$4,919,810,000
|
20/21
|
33.51
|
$4,951,277,000
|
21/22
|
33.51
|
$5,087,398,000
|
22/23
|
33.75
|
$5,262,621,000
|
23/24
|
33.84
|
$5,416,727,000
|
24/25
|
33.94
|
$5,574,748,000
|
25/26
|
34.18
|
$5,759,285,000
|
If you look at the economic path this governor is charting, it is exactly the same kind of fiscal mismanagement that has led to the decline of cities like Detroit and that is also threatening many northeastern states. The policy is to not address unsustainable policies of the past. The most pressing unsustainable policy is the benefits of government workers, that are way out of line with the private sector. By raising taxes to try to accommodate public union workers, thus transferring money from the citizens to the government employees, leads to less business activity and then another round of tax increases to sustain the revenue. Pennsylvania's population has been stagnant for years. As this pattern continues, businesses continue to leave or not settle in the state, younger workers follow the job opportunities and lower taxes in the south and west. Public workers use their political power to ensure their benefits are maintained, then often retire to low tax states in the south and west. The population becomes older and less affluent, if this cycle is not broken the state will continue to decline until it reaches a tipping point that will be almost impossible to rescue. Pennsylvania had 30 US representatives in 1963, in 2013 it now has 18 seats and is due to loose 2 more US representatives in the future.
Raising the sales tax will create a disadvantage for the businesses located in the state. People have many more options to purchase items from other states without the tax. I see many empty stores in the area now - raising the sales tax will put the remaining stores at a further disadvantage. If state income declines due to less activity caused by the higher taxes, then the pattern is repeated to increase the taxes to sustain the revenues; this is a recipe for disaster. The legislature has attempted to break this cycle...it is resisted primarily by the government worker unions, who believe they deserve elite benefits compared to the rest of their neighbors. The Governor has now openly stated that there will not be any compromise on his budget and is willing to make the 2016 elections a referendum for higher taxes and elitist benefits for his political supporters. This is great gamble on the Governor's part, I believe there will be a brutal fight coming.
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