The General Assembly recently finished its work on the 2016-17 state budget, which thankfully avoided many of the problems we experienced in 2015.
The adopted budget increased spending by 4.7% and required a $1.3 billion revenue package, including new taxes on digital downloads, tobacco, and other items. While I supported the budget, I could not vote to support the new taxes.
Like everyone, I was pleased that a compromise solution was reached in a far timelier manner then last year, however I can’t help but think the General Assembly missed another opportunity to position our state for economic growth and ensure all our citizens have the chance to experience earned success.
Since I have been in Harrisburg, political leaders have presented the public with what I believe is a false choice – to balance the budget by either cutting spending or raising taxes. This “either/or” scenario ignores what I believe is the best way to generate new and recurring revenue for government – through increased economic activity and output.
A strong, working economy built on the free enterprise system is achievable if state government would adopt and foster policies that promote it. Instead of reaching back into the pocketbooks of taxpayers, state government should be looking at ways to expand our economy, reduce unemployment and underemployment, and foster manufacturing and other industrial processes.
The difference between these two choices is real and it greatly matters.
One approach, which is often the preferred method for government, takes from the economy through additional taxes. This results in a reduction in economic output and further limits opportunity for individuals, families, businesses and industry who now have less disposable income to spend, save or invest.
Additionally, this vicious cycle of new taxes can also create additional financial stress on fixed and low-income people. As these citizens are required to give government more of their already limited means, they have less to meet their needs. In some cases, this results in driving them to use public programs to make up the difference, further increasing costs for taxpayers, resulting in more dependence on government, not less.
And even though state government realizes an initial benefit from the taxes it increases or creates, it eventually suffers from the subsequent economic stagnation that results, necessitating more or new taxes again in the future, which only further harms the economy.
The other approach, which is predicated on a well-balanced and strong economy, allows everyone – including government – to benefit from increased revenues through growth.
Here, government spurs economic activity through policies that allow the private sector to expand, not contract. Pro-growth strategies are used to grow our economy by working to control or reduce anti-businesses taxes, such as Pennsylvania’s Corporate Net Income Tax.
Additionally, unnecessarily high-cost regulations are avoided in an effort to promote additional production and output. Government should partner with the private sector to enhance economic opportunity and allow small businesses, entrepreneurs and industry to grow, to the benefit of working people.
In this model, everyone wins. Businesses and industry flourish by fully experiencing their economic potential. People have meaningful employment opportunities and can take advantage of additional wage growth, advancement or other job prospects. And state government realizes additional revenue based on existing tax structures to pay its bills, rather than new or increased taxes.
However, revenue is only one side of the equation.
These economic realities are strained even more when you consider that of the $1.4 billion increase in new spending for 2016-17, $1.2 billion of it was due to mandated cost increases. In total, non-mandated (discretionary) spending only went up only 1.8%.
If those cost-drivers that we know exist do not get addressed, no amount of pro-growth policy will meet the financial challenges that await us.
For example, one of the largest cost-drivers for our state budget is human services. Despite this, Governor Wolf recently expanded Medicaid through the Affordable Care Act to an additional 500,000 people. Now, in addition to trying to manage the high year-to-year increases in the existing programs, these new, additional costs will be coming due as well.
Another example is the pension system for public employees and teachers – which has strangled both the state budget and our local school district budgets.
In the 2016-17 budget, $345 million in new contributions was necessary to pay for teacher pensions and $140 million more was needed for state employee pensions. The total taxpayer contributions for public pensions now tops $5.8 billion each year, which increasingly limits our ability to fund other needed programs, particularly those K-12 initiatives that would benefit Pennsylvania students.
And for years we have avoided having a substantive discussion on seriously identifying waste, fraud and abuse in state government spending, programs and services. Pennsylvania can no longer – nor could it ever – afford to pay or financially reward cheaters. That must end.
In the end, I believe that there is a better way.
The goals of having a responsible spending plan as well as consistent revenues are not mutually exclusive. However, how we accomplish those goals makes all the difference.
I intend to promote pro-growth ideas that will help ensure that Pennsylvania will be a place where everyone has opportunity.