In 1991, the largest tax increase in the Commonwealth’s history was enacted. The $3 billion hike fell particularly hard on business. There’s little doubt that this tax hike crippled Pennsylvania economically, and arguably we have yet to recover.
Opponents to The Chamber’s tax reduction efforts point to the tax cuts that business “received” in the 1990s. Unfortunately, these critics fail to look beyond our Commonwealth’s borders to see what happened elsewhere during that same period of economic growth. Other states did not sit still. Rather, they took proactive steps to solidify their economic advantages. Not only did they stay ahead of Pennsylvania in the race for jobs, but they outpaced us. For example, as Pennsylvania debated a CNIT rate cut from 10.99 to 9.99 (pre-1991 rate was 8.5%), states like North Carolina and South Carolina were enacting CNIT rate cuts to 6.9 and 5.0 respectively.
The statistics speak for themselves:
Pennsylvania’s Corporate Taxes:
- CSFT and CNIT rates are still the second highest in the nation
Pennsylvania’s Economy:
- Employment job growth rate was 50.5% lower than the national rate from 1990-2003
- Gross State Product was 18.3% slower than the national rate between 1990-2001
- Personal Income growth was 20.1% slower than the national rate between 1990-2002
Pennsylvania’s Demographics:
- 2.5% growth in working population was well below the national average of 12%
- Lost more young people (ages 25-34) than any other state in the union in the 1990’s
- We now have the third highest percentage of population over 60 and the fifth highest senior citizen population in the country
Today, not only is there a common recognition that Pennsylvania’s business climate is uncompetitive, the results also allude to a broader problem with our public policy. Too often we fix problems with short term solutions and fail to look at the long-term ramifications. I ask whether we’d be facing a $600 million budget gap for medical assistance programs today if we had a climate that was more competitive for job creation in the 1990s? One could argue that the economic and demographic trends would not be as threatening to our long-term competitive viability had we been more aggressive at creating a job-friendly climate throughout the last decade.
Former Pennsylvania Speaker of the House, Benjamin Franklin, once said, “the definition of insanity is doing the same thing over and over and expecting different results.” With today’s struggling economy and problems with government spending, will we react only to address the medical assistance programs?
In other words, we will sow again, but what will we reap tomorrow?
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