HARRISBURG – Facing a national recession and a growing state budget deficit that imperils Pennsylvania’s long-range economic well-being, Gov. Edward G. Rendell proposed a mix of remedies, including a temporary increase of one-half percent in the state’s personal income tax to 3.57 percent. The law would require the tax to return to 3.07 percent after three years.
The temporary increase proposed by the governor would raise approximately $1.5 billion per year in new revenue. A temporary tax has been implemented successfully to address a fiscal crisis in Pennsylvania on three prior occasions.
Pennsylvania’s current personal income tax, or PIT, rate of 3.07 percent is the second lowest in the nation among the 41 states that impose one. During the three-year period that the PIT would be at 3.57 percent, Pennsylvania would still have the third lowest such tax in America.
Rejecting Republican calls to balance the budget solely with deep and extreme cuts that would damage the state’s education, economic development and job training programs, Rendell said the proposed PIT increase, coupled with hundreds of budget reductions that he has already implemented, are necessary to address a projected $3.2 billion budget shortfall. Failure to raise additional revenue at this critical time would risk making Pennsylvania’s overall economy worse.
“Wall Street’s greed and need for instant gratification created a global economic crisis which led to giant budget deficits in almost every state in America. Our families did not create this mess yet we are the ones who must clean it up. But, we shouldn’t balance the budget by eliminating more job opportunities or by shortchanging our children’s future with drastic cuts to public education,” said Rendell.
“I proposed eliminating hundreds of line items from our budget and made billions of dollars of cuts to important programs that I have always supported. I’ve previously proposed putting a levy on smokeless tobacco and cigars, adding 10 cents to the cost of a pack of cigarettes, and asking energy companies who extract natural gas from our state to pay their fair share. I also proposed using hundreds of millions from our Rainy Day Fund to help bridge the gap.”
“Still, even with all of these proposals added together, we are more than one billion dollars short of balancing our budget by the end of June,” Rendell added.
This morning, Rendell visited the new headquarters of Westinghouse near Pittsburgh, and was scheduled to visit Erie, Scranton/Wilkes-Barre and Montgomery County later in the day to highlight critical economic development programs that created and retained tens of thousands of jobs in the state over the past several years. While thanking business leaders for locating or expanding in Pennsylvania, the governor pointed out that the very same economic incentives offered to Westinghouse and other employers would not be available under the Senate Republican budget proposal.
At the same time, he said, the business community must do its part to help out in the crisis, and he renewed his call for the General Assembly to approve his proposals to raise revenue from the tobacco, insurance, energy and pharmaceutical industries.
“I am not asking our citizens to carry the burden of this crisis alone. Companies doing business in Pennsylvania must pay their fair share,” the governor said.
He said he was confident that the General Assembly would live up to the commitment that he is asking for in statute to eliminate the tax increase after three years, as it has done in the past. On three occasions – in 1983 and 1991 on the PIT, and in 1991 on the Corporate Net Income tax – the planned reductions took effect as scheduled. The other time an automatic reduction was enacted with a tax increase – on the CNI in 1977 — the legislature delayed the scheduled rollback for several years but ultimately passed a bill that lowered the CNI to its 1977 level again.
Governor Rendell addressed the alternatives to his tax increase proposal – which will cost the average Pennsylvania family less than $5 a week – and found them to be far worse.
“Making deep cuts in state spending on schools would most likely cause property taxes to rise and the quality of education to fall. Eliminating our job training programs and other efforts to attract and grow businesses is likely to cause more Pennsylvanians to lose their jobs, lengthening the recession here while creating greater demand for government services.
“Letting state prisoners out of jail early – as some other states have done – could cause rising crime in communities across the state. Ending vital programs for sick children and adults with disabilities would simply increase unfunded costs to hospitals and nursing homes, many of which are already near the brink of financial collapse.
“The simple truth is we have no good choices,” said the governor. “There are no shortcuts out of this crisis, no magic bullets, no painless path out of this morass. We can do the easy thing for the moment or the right thing for Pennsylvania’s future. The fairest plan is to spread the pain across the board, and let our economic recovery begin.”