Monthly Archives: January 2012

Lawmakers Introduce Corporate Tax Reform

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America’s international competitiveness amidst an increasingly globalized economy is of top concern in the arenas of economic growth and job security. Businesses in the United States are highly regulated and subjected to a corporate income tax rate that ranks amongst the highest in the world. In addition to the onerous tax demands set by the federal government, many states impose additional corporate income taxes which heighten the strain on job creators. Unfortunately, Pennsylvania tops the state rankings for the highest corporate income taxes. In a bipartisan fashion, two lawmakers are introducing a bill to reduce rates, which will serve as a catalyst to revitalize the Keystone economy.

The corporate tax bill is promising for Pennsylvania’s business climate as premised upon two sound reform principles. The bill is designed to reduce tax rates while reducing tax loopholes. If passed through the General Assembly, the Commonwealth’s corporate tax rate will decrease from ten percent to seven percent. In an effort to remain revenue neutral, Pennsylvania tax law will put an end to a business tactic known as the Delaware loophole. The Delaware loophole allows companies that are headquartered in Delaware, but operating in Pennsylvania, the ability to write-off trademarks, patents, or investments as business expenses, thereby reducing their tax obligation to Pennsylvania. Closing the Delaware loophole will level the playing field for small businesses that do not utilize interstate operations.

While this tax reform is a noble starting point, the President of the Pennsylvania Chamber of Business and Industry asserts that Pennsylvania operates under the nation’s worst tax structure. Even with the passage of this bill, the Commonwealth will only move to the middle of the pack amongst the state corporate income tax rankings. The bipartisan support of this bill and resurgence of corporate income tax reform is an opportunity to examine additional loopholes in the tax code. A comprehensive review of the tax code is warranted before this bill reaches the Governor’s desk.

Addressing Pennsylvania’s corporate tax code is a bona fide approach to augment the state’s competitiveness and business climate. Job creators and entrepreneurs respond to incentives. Policymakers must provide a tax system that encourages investment throughout the state. When businesses choose to expand their operations, owners must be enticed to stay and operate within the state. The bipartisan sponsorship of this bill is a starting point in the right direction. Legislators can no longer ignore the consequences that cumbersome taxation plays on the economy. Business leaders and entrepreneurs must regard the Commonwealth as a desirable state for business.

Job Talks Need Substance

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As the year 2012 commences, Democrats and Republicans alike are directing their attention toward bolstering the Commonwealth’s ailing economy and job creation. Lawmakers on both sides concur that there is significant work to be done as unemployment remains at an unacceptably high level. Both parties are looking towards tax credits targeted at stimulating specific industrial sectors. Unfortunately, the economic outlook for the Keystone state is becoming increasingly bleak as the burden of government is projected to skyrocket. Pennsylvania needs a twenty-first century government makeover in order to stave off a ballooning budget crisis and grow the economy. To this end, it is imperative for voters to select more conservative candidates that will make the necessary reforms and get the job done.

The Pennsylvania Independent Fiscal Office recently released its first annual report on the state’s five-year outlook. The office revealed several incredibly alarming statistics on the growth of government spending and debt. Welfare, corrections, and debt expenditures are projected to increase by more than seven percent per year. While these increases far exceed the anticipated two percent increase in annual revenues, Keystone pension contributions will mount by forty percent each year. These projections of the status-quo in Pennsylvania public policy threaten to undermine the state’s fiscal stability. As a result, immense spending cuts, tax increases, and uncertainty for the business climate will ensue.

Lawmakers must recognize the magnitude of the foreseen challenges facing Pennsylvania in the upcoming years. In order to successfully rank Pennsylvania amongst the most competitive states for business and economic growth, there must be more than tweaks and tax credits. Reforms to curb spending and debt must be accompanied with competitive labor and tax policies. Failing to act on the increasing burden of government spending and debt will pose a threat to economy recovery for years to come. An approach that caps government spending while raising revenues through business friendly policies that grow the private sector will propel Pennsylvania past its budget crisis and stagnant economy. Now is the time for bold leadership from state officials.

Scrap Solar Subsidies

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In recent years, Harrisburg politicians decided that Pennsylvania would play venture capitalist in the solar energy market. In an attempt to attract green jobs, the Commonwealth extended more than $180 million in loans and grants to develop solar panel production. Subsidies were so successful in creating an artificial market that solar energy credits completely collapsed in value leaving a surplus of solar panels. A Republican representative has decided to sponsor legislation to salvage the solar industry through more subsidies. This legislation defies the principles of limited government and free markets. Additionally, the legislation is projected to increase costs for both energy consumers and taxpayers.

Clearly the government caused the boom and bust of the solar market. The push by the Republican lawmaker for increased government intervention in this arena is ill-advised. The considered legislation is anticipated to cost Pennsylvania energy consumers more than $3 billion over the next decade and will prove costly to the taxpayer as well. Interestingly, ideological roles seemed to be reversed as the Democratic committee chair stands in opposition to the plan for increased solar subsidies. Despite Gov. Corbett’s objections, the Republican’s legislation has garnered enough co-sponsors in the House to pass. The legislation requires utility companies to triple their use of solar power by 2013. Over the course of the next decade, Pennsylvania’s Alternative Energy Portfolio Standards Act of 2004 requires that 18 percent of all energy sources from renewables.

The stringent mandates from the 2004 legislation and the current solar rescue package will be detrimental to the state’s already stagnate economy. The government sponsorship of solar and renewable energies diminishes the purchasing power of Pennsylvanians. Residential and commercial energy users will be coerced into paying more for their energy. The government is directly picking winners and losers in the economy as they buttress one sector at the expense of competing energy producers. Harrisburg’s mandates must be repealed as they are in opposition to free market competition which fosters innovation.

Providing more subsidies to fix an already distressed solar market is not the solution. There is another method to attract the green industry to Pennsylvania without imposing costly energy mandates on Keystone residents. By implementing policies to improve Pennsylvania’s business climate, policymakers can entice investment for not only green jobs, but all industries. Tax reform accompanied with a right-to-work law would be a catalyst to increase Pennsylvania’s economic competitiveness.

The government must stop playing venture capitalist with taxpayer money. Pennsylvanians should be given the opportunity to utilize the most affordable energy source. The Commonwealth is very fortunate to have an immense amount of coal and natural gas. These natural resources need to be part of the state’s energy portfolio for the future. Tremendous innovations have already occurred in recent years regarding renewables. Improving Pennsylvania’s business climate utilizing a free market is the best way to develop green energy technology and stimulate the Keystone economy.

Penn Turnpike Financial Woes Worsen

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Like PennDOT, the Pennsylvania Turnpike is yet another government agency that is experiencing a worsening financial situation. The Turnpike Commission has been attributing their financial woes to declining revenues and increasing costs. Despite increased tolls, Moody’s credit rating agency foresees an ongoing struggle for the turnpike. A Republican representative is now advocating for the allocation of Marcellus Shale natural gas taxes to ease the toll road’s funding burden of nearly half a billion dollars in state transportation funding. While this may offer a short-term increase in funds, the underlying problems associated with the turnpike commission remain. A superior policy alternative would be to lease the turnpike.

Despite tolls being raised by 20 percent in 2009, the Pennsylvania Turnpike has still lost $2.4 billion. In 2012, the commission has ordered another 10 percent increase in an attempt to balance the budget. The turnpike’s debt has escalated by more than 180 percent, or $5 billion, since 2007. The additional debt will be accompanied by more than $11 billion in interest payments over the course of the next several decades. This will place a significant burden on taxpayers. The turnpike commission is exacerbating Pennsylvania’s state of fiscal instability. The history of the Pennsylvania Turnpike Commission has been rifled with deficits, toll hikes, labor strikes, and corruption.

Unfortunately for Pennsylvanians, lawmakers continue to support the Turnpike Commission and all of its failures. A Republican representative is calling for natural gas taxes to be utilized to alleviate the turnpike’s funding of statewide transportation. This proposal is a common big government maneuver in which one program or revenue stream is utilized to fund another program. While the turnpike tolls are designed at funding the state roadway, its tolls on motorists are being directed to state transportation and mass transit. This is similar to immense alcohol markups by the PLCB that supplement the general fund instead of strictly financing law enforcement and regulation of the industry. Directing natural gas taxes towards state transportation initiatives is a similar ploy. These revenues should be earmarked solely for environmental regulation of the industry.

There is an alternative to the billions of debt and makeshift attempts by politicians geared toward raising new revenues on industries to fund troubled programs. Leasing the turnpike will flush the state with cash while improving the roadway for Pennsylvania motorists. If the Commonwealth would have proceeded with the lease agreement suggested by the Rendell administration, Pennsylvania would have received nearly $12 billion upfront and accrued a billion dollars in interest annually. In the leasing contracts, the state would have the autonomy to control toll hikes, receive payment for state police coverage and no longer be responsible for maintenance costs.

The Pennsylvania Turnpike continues to be a burden to taxpayers. The government owned roadway accrues billions of dollars in debt for taxpayers while continually raising tolls on motorists. Siphoning of funds from Marcellus Shale to turnpike commitments is only a short-term fix that maintains the status-quo. The Republican majority must take the lead and release the turnpike in order to turn the roadway form a costly liability to a profitable asset.

Prevailing Wage Reform Possible in 2012

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Concerned Pennsylvanians are well aware that PennDOT is facing a multibillion dollar shortfall. Whether it is the state’s several thousand structurally deficient bridges or the more than occasional potholes, state rankings continually cite the Commonwealth amongst those having the worst roads in the nation. Democrats proclaim that PennDOT’s dilemma stems from a lack of revenues are therefore advocating for increased fees and gasoline taxes. However, the facts reveal that the Keystone state is amongst the highest in the nation when studying spending per road miles and gasoline taxes. There are solutions to the transportation crisis that will more efficiently allocate transportation dollars. One such proposal is prevailing wage law reform.

CF President Matt Brouillette explains that the origin of prevailing wage laws dates back to the 1930s. It was an effective measure designed to keep construction wages high in order to protect white workers from competitively cheap black labor. While many states have repealed their prevailing wage laws, Pennsylvania continues this practice which is responsible for increased labor costs of more than 30 percent. The annual price tag for prevailing wage is approximately $1 billion. The increased costs associated with prevailing wage negatively impact state transportation funding, local government and school board budgets.

Towards the end of 2011, Rep. John Bear and his colleagues on the Labor and Industry committee introduced several bills to reform Pennsylvania’s costly and antiquated prevailing wage. The GOP lawmakers believe that the new legislation will free up funding for additional public projects and more efficiently use taxpayer money. To date, the package of reforms has yet to reach the governor’s desk. As legislative attention is becoming increasingly focused on transportation issues, it is quite possible that after 50 years, the prevailing wage may finally be amended in 2012.

PA Independent’s recent story on the resurgence of the prevailing wage debate was met with opposition from PA AFL-CIO President Rick Bloomingdale. He claims that the proposed changes in prevailing wages will negatively impact union construction laborers by reducing wages and ultimately will affect the communities in which they live. While Bloomingdale’s claims have merit, he does not address the consequences or burden that the increased taxes required to fund the salaries of construction workers will have on the majority of Pennsylvanians. While many citizens are losing jobs or being forced to accept pay cuts, the prevailing wage law guarantees construction worker’s salaries of 20% to 30% above that of comparable jobs in the private sector.

Reforming or eliminating Pennsylvania’s costly prevailing wage laws are an important start in addressing PennDOT’s funding gap and spending problem. Prevailing wage laws are proving to be too costly and are adversely affecting the ability to repair the state’s infrastructure. The laws are out of touch with the majority of Pennsylvanians who have experienced large pay cuts and loss of employment. At a time when families are struggling to make ends meet, taxpayers can simply not afford to support artificially high wages associated with the public sector labor union. Moving in the direction of competitive private wages will free up the resources needed for more projects and additional hires in construction throughout Pennsylvania.