I’ve just been looking at the Pennsylvania governor’s budget proposal and I’m disheartened to see that Wolf still hasn’t got a good idea how the economy works. Don’t get me wrong, I did see some things I liked, but there are a couple of things that trouble me.
First, the things I like are that the income and sales taxes won’t be raised under his proposal, which isn’t so much his economic plan as his reelection plan. No governor who wants to be reelected would be stupid enough to raise those taxes in an election year. That will have to wait until next year.
His spending proposals are a mixed bag, some good, some bad; some frivolous and some necessary. No surprises there. There is of course the severance tax for gas drilling, and while I’m not a fan of new or increased taxes, if you just can’t control yourself when it comes to spending, this tax is a lesser evil.
I also like that the proposal includes a lowering of the corporate income tax (though going from second highest in the country to fifteenth highest over five years, may not be enough), but then comes the problem.
The governor is proposing eliminating the so-called Delaware loophole, which allows corporations to avoid the state corporate tax by lumping revenue generated in Pennsylvania with revenue produced in states with lower income taxes and paying the tax of the lower-tax state.
While it is perfectly reasonable to expect taxes to be paid in the state in which the money is earned, there is a serious pitfall.
Corporations in Pennsylvania who have been paying the lower taxes may move their PA operations to the other state leaving Pennsylvanians without jobs and the state without the income taxes from those jobs and the sales taxes which would have been collected on purchases made with that income.
Since most companies pay much more in salaries than they make in profits, this could potentially cost the state money in both lost revenue and increased reliance by those newly unemployed on the government “safety net”, possibilities I’m sure have not been adequately explored.
When will our elected officials learn that nothing exists in a vacuum. Everything affects everything else, and the most draconian law of all is the law of unintended consequences.