Gov. Ed Rendell's hypocrisy on taxes

Tax everyone but the guy behind the tree

By Nathan A. Benefield

Gov. Ed Rendell's hypocrisy on tax policy is on full display this budget season. While Rendell is demanding higher taxes on individuals and most businesses, he is also working to preserve the Film Tax Credit for his Hollywood buddies. He argues that without this credit, filmmakers would flee Pennsylvania (even though most filmmakers don't receive the credit, and film production has barely increased since the tax credit was enacted).

Apparently, Rendell thinks higher taxes are harmful to film executives, but everyone else can live with government taking a bigger bite of their paycheck.

Gov. Rendell's recent proposal to raise taxes on wages during the recession reveals just how out of touch he is. Defending his proposed 16 percent hike in Pennsylvania's income tax, Rendell called a Commonwealth Foundation estimate of 24,000 private sector jobs lost from his tax plan "ludicrous." Rendell questions not only the projected number of lost jobs, but suggests that businesses and individuals can simply pay higher taxes and maintain their expenditures.

To understand the baneful effect of Rendell's tax scheme, consider one of his favorite rhetorical flourishes: the personal income tax hike, he says, would cost the average household a couple of cups of coffee at Wawa each week. But if millions of Pennsylvanians give up two cups of coffee each week, how many Wawa stores will need to reduce benefits, lay off workers, freeze hiring or even close altogether?

Or consider small businesses, which Rendell claims won't lay off workers for a tax increase of $500, or $1,000, or even $5,000 per year. Perhaps not, but those businesses will cut costs somewhere — maybe they won't buy a fax machine or a new printer they were planning on. Maybe a law firm would cut back on the charts they use in court. While these business have not laid off their own workers, their cost-cutting would pinch workers at the print shop in the neighborhood, which sells fax machines and copiers and produces charts for law firms. The ripple effect of extracting $1.5 billion of Pennsylvania's economy will reach far and wide.

Gov. Rendell argues we can "afford" a tax increase because Pennsylvania has the "2nd lowest" flat rate, or top rate, of states with income taxes. Once again, Rendell's rhetoric distorts reality. Nine states have no income tax, or only assess it on interest and dividends (not coincidently, these states have the strongest economic growth). Most states have lower rates on the first few thousand dollars of income. Most have personal exemptions, marriage and child deductions, and other credits or deductions that lower their overall tax burden. And most states have no local tax income taxes, like Pennsylvania does.

In reality, Pennsylvania ranks 16th highest in state and local income taxes. More importantly, Pennsylvania's overall tax burden is even higher, 11th highest in the country, to be precise. Rendell's latest proposal would only further hinder our economic competitiveness.

But the income tax hike is not Rendell's only job-killing proposal, just his latest. He has proposed: increasing the cigarette tax, which falls disproportionately on the poor; a tax on smokeless tobacco, which would hurt small Pennsylvania tobacco farmers; and a new tax on natural gas extraction, potentially killing an emerging industry. Rendell even wants a 2 percent tax on insurance premiums, because apparently, he doesn't think health insurance is expensive enough.

Rendell also wants to cancel the scheduled reduction in the Capital Stock and Franchise Tax (CSFT), and increase the tax retroactively. Yet in 2006, Rendell said the CSFT "hits Pennsylvania businesses — particularly manufacturers — hard" and a reduction was critical to our economic competitiveness.

Unfortunately for Pennsylvanians, Rendell is more than willing to sign job-crushing tax hikes if doing so means more money for him to spend. Unless of course, that tax hike would fall on his political allies.

Nathan A. Benefield is director of policy research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.