Monday, February 5, 2007

Ed Rendell Must Be On Drugs

Pennsylvania Governor Ed Rendell wants even more of your money. He feels that the Commonwealth is getting into ever-deepening financial trouble, and has decided that a tax increase will be necessary to get us out of it. And his proposed vehicle for bringing in more tax revenue, as reported in the Post-Gazette this morning, is to raise the statewide sales tax by one full percentage point. Most counties across the state will see their sales tax go from 6 percent to 7 percent. But here in Allegheny County, we -- along with our urban cousins in Philadelphia -- will see our taxes go from their current level of 7 percent to 8 percent. He thinks that the majority of Pennsylvanians, acting through their elected representatives, will happily go along with this idea. The man must be stark raving mad.

To begin with, he would have had to work quite hard to find a worse moment to make such a proposal. The only time in the recent past when Pennsylvanians could have been less-receptive to a tax increase was in the immediate aftermath of the July 2005 legislative pay raise scandal. But we are only marginally less tax-intolerant now. For one thing, the pay raise scandal is still recent enough that most of us have not really forgotten about it. But more recent news has only highlighted the incredible ways in which Harrisburg is mismanaging our tax dollars.

To begin with, there was the mid-December series of articles from the Associated Press concerning Pennsylvania's ticking public pension time bomb (Part 1, Part 2, Part 3, Part 4, Part 5), which I have already discussed in an earlier post. The short version of this story is that our state government, back in 2001, treated its workers to an enormous and largely unaffordable boost in their guaranteed pension benefits. To hide this fact from the rest of us, they have spent the last several years passing loopholes which let the state, municipalities, and school boards off the hook for funding these gold-plated pensions. At some point -- and given Governor Rendell's proposal, it looks like that time is upon us -- they will have no choice but to raise our taxes sharply to pay for these benefits. But since these pension plans are so enormously more generous than anything that the rest of us could ever hope to dream about, it's very hard to see why we should agree to go along with a tax increase to support them.

In addition to this series of articles, recent days have produced a wealth of stories about how the legislature has spent millions of dollars on salary bonuses and other assorted items, with virtually no budgetary oversight whatsoever. First came the news that Republican lawmakers, in both the House and Senate, had handed out huge amounts of money in bonuses to the people who were employed on their staffs. In the Senate, Republicans had paid roughly $180,000 in bonuses in both 2005 and 2006, for a total of about $360,000. Over in the House, GOP lawmakers had awarded their staffers $649,661 in 2005 and $269,608 in 2006; the two-year total for Republican lawmakers in both chambers totalled up to nearly $1.3 million.

As disgusting as this news was, the story surrounding the Democratic party was far worse. At first, they refused to even tell us taxpayers how much of our money had been spent to on these bonuses. Then, a day later, they finally caved into public pressure and reported just how much money had been handed out to Democratic staff in the House and Senate. The amounts, at least on the House side of the equation, were simply staggering. In just one year alone, 2006, House Democrats gave their staff $1.9 million in bonuses, surpassing the two-year total that Republicans had spent in both legislative chambers. The Governor was said to be stunned by the amount. At least Senate Democrats were far more reasonable, spending just $38,000 in 2006.

Then, over the weekend, we found out just a little bit more about how state lawmakers are spending our money. A story in the Post-Gazette listed a litany of perks, from $53,000 to provide one state senator with a chauffeured car to nearly $8,000 for one lawmaker's supply of pretzels and peanuts. All of this waste, all of these incredible benefits for state employees, and these butt nuggets still can't find a way to keep our mass transit systems from imploding.

This is the environment in which Governor Rendell is going to announce his plan to raise the sales tax. The man's got balls, I'll give him that. But I'm not willing to give him one slim dime in additional tax money.

It's not just that sales taxes are inherently regressive. It's not just that those of us in Allegheny and Philadelphia Counties will find ourselves with what is well into the stratosphere of the the highest sales tax rates nationwide. It's also the bullshit argument that Mr. Rendell is using to try to sell this idea to us. his claim is that roughly half of the money raised by the sales tax increase will be used to reduce property our taxes.

That might be somewhat good news, if it were actually true. Pennsylvanians do face some rather high property taxes, and property taxes are a particularly difficult burden for some people -- especially retirees -- to pay. But the millage rates for property taxes are not set in Harrisburg, and that's where the Governor's argument for higher sales taxes falls right on its ass. Because we all know what is going to happen if Governor Rendell's tax increase becomes a reality.

The legislation will initially mandate some kind of percentage reduction in property tax rates. There may even be some kind of cap imposed on how much these rates can increase from year to year. But it won't last. The municipalities and school districts that currently rely so much on property taxes will expect Harrisburg to pass along part of the new sales tax revenue to make up for what they have lost. That will work for a few years, but eventually the Commonwealth will find some compelling reason why it needs to hold onto some of these dollars. The local governments will have no other option by to begin raising property taxes to maximum extent allowed by the law, which is almost certain to have a fair bit of wiggle room in it by that point.

Eventually, we will find our property tax rates at or near what they are today, plus we will be paying an 8% sales tax on nearly everything we purchase. And we will be doing all of this not to fund things that are as useful, necessary, and important as urban public transit, but to instead pay for a tsunami of excessive spending on perks and benefits.

I wonder, when everything is said and done, whether there will be anyone left in Pennsylvania who isn't a government employee of some kind. Maybe I can convince my employer to let me telecommute from New Hampshire or something.


Anonymous said...

Appalling. We haven't realized a cent of property tax relief since granting our blessing to the casinos, and already they've moved onto this.

Anonymous said...

8% is high, but not the highest. Erie County, NY, is 8.25%, and in your linked Wikipedia article, it says that Utica, NY has a mind-boggling 9.5% sales tax.

Richmond K. Turner said...

Fair point. I'll ammend my post. Thanks for pointing it out.

Anonymous said...

What kind of income & property tax rates apply in NY?

Mark Rauterkus said...

Tax trivia.

Are campaign contributions taxed????


Anonymous said...

I followed the wikipedia tax-rate link expecting to be horrified, but our state tax seems to be within a point, plus or minus, of most other states sharing our age and climate. (Our exemptions aren't quite as rad as Rhode Island's -- they cut you a break on "original artwork" and coffins). But seriously, invoking the stratosphere seems a bit hyperbolic. We're in the same bracket as the other haggard, hard-living old rustbelt states.

Richmond K. Turner said...

Fine, we are in the same league as other failing rustbelt states. Is that really something that we want to boast about? The last time I checked, all of those states (including ours) are seeing a net out-migration to places which do not saddle their popluation with these kinds of tax rates. How about this comparison? Compared to England (17.5%) or other European countries, we have it downright easy.

But the key point about my original post is not whether we have it good or bad in relation to other places, or whether a high sales tax is really a bad thing.

In a cruel and heartless way, I can see that high sales taxes would be a good thing for me. There is a whole bunch of things that other people buy -- big screen TVs, cable service, stereo systems, luxury cars, jewelry (my wife doesn't like it), high-end furniture, etc. -- that other people purchase quite a bit of. In general, I am probably pretty way down in the lower tail of the discretionary spending curve, especially when you control for household income.

So, if the only tax we had in Pennsylvania was the sales tax (probably at around 25% or so), and we got rid of all of the other ones, I would make out like a bandit. My tax burden would go down like a stone, and I would have other people pulling my weight for me. What's not to love about high sales taxes.

But the key problem in this case, and the central point of the original post, is that the Rendell plan will not eliminate (or even permantly reduce) these other taxes. We will see a temporary reduction in property tax (maybe) for a couple of years before the property tax rates creep back up. And then the only difference between then and now will be this higher sales tax.

That's the part that I don't like.