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Attack of the Tax Monster

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Here is a bizarre, off-the-wall idea on how to deal with the $4 billion to $5 billion deficit the state of Pennsylvania will be facing this year.

Why not raise taxes?godzilla78.jpg

I know it is a taboo topic in Harrisburg today. Gov.-elect Tom Corbett has sworn not to increase any taxes. Just utter the word and the legislature reacts the way the residents of Tokyo did when Godzilla loomed over the city. As the legislature convenes for a new session this week, I assure you there will be no substantive talk about what can be done to confront this monster.

But, let us be real.  What will come into high relief in the coming months is the reality of what must be done to balance the 2011-2012 state budget without any, um, revenue enhancements.

This year, Pennsylvania could face a deficit equal to nearly 20 percent of the state budget.

That won't be erased by reducing the size of the state's car fleet or "achieving management efficiencies" in the state bureaucracy, as Corbett has suggested.

The deficit is too big.

But, how to go about it?

The easiest way to reduce the deficit would be to take an axe to those programs that have been sustained by an infusion of federal stimulus money in recent years. Out of this year's $28 billion budget, $2.7 billion are stimulus dollars provided by Congress and the Obama administration. That program is ending. The money is gone.

It makes sense to say: We were able to spend this money on programs while we had it. Now, we do not; so those programs will have to eat cuts equal to the amount of federal money they received. In one swell foop, you could save $2.7 billion..

And what are those programs? Most of the federal stimulus money was spent on welfare and education. The state's basic education subsidy, which totals $6 billion this year, includes $655 million in federal stimulus money. Special Education got $214 million from the same pile. Charter schools received $96 million and community colleges $22 million this year.

The Welfare Department got a total of $1.8 billion of the stimulus money. Most of it went to pay for medical assistance for the poor (the number of recipients jumped during the recession), plus programs for the mentally ill and retarded.

Anyone who wants to discuss fiscal policy - without flecks of foam rising to their lips - has to deal with certain realities and certain myths.

The myth is that state government is a vast bureaucracy that can be easily cut without any effect on delivery of services.  The reality is that you could eliminate the entire state bureaucracy and not come close to erasing the deficit.  This year, the total budgeted for general government operations (i.e. the central bureaucracy) amounts to $760 million, roughly 2.7 percent of total state general fund expenditures.

Where does the rest of the $28 billion go? For every dollar the state spends, 72 cents goes back to individuals, local governments and school districts.

You cannot reduce a multi-billion dollar deficit without cutting into this 72-cent share.

And if you do that, what are you really doing? Cutting spending on redistributing the burden onto local governments?

Now, here is another reality.

If you are a citizen and you want government services you have to pay for them.

It sounds like a self-evident truth, but one of the central strains of American political culture has been the simultaneous demand for more services and lower taxes.

This delusional concept has traction partly because it is embraced by politicians who keep saying they want government off our backs, while they vote for programs that increase government spending.

Fear of raising taxes has long been a form of neuroses among the elected classes. Lately, it has become a psychosis - a way of avoiding responsibility for the government you were elected to oversee.

Here is another reality.  Pennsylvania's tax rates are not higher than other states. Our 3.07 percent personal income tax is the next to lowest rate in the nation among the states that charge a flat rate.

Raising the income tax from 3.07 percent to 3.7 percent would bring in an additional $2.1 billion - not enough to erase the deficit, but enough to cover half of it. Such an increase would cost the taxpayer who makes $50,000 a year an additional $313 annually in income taxes. It amounts to $6 a week.

Have we devolved in our concept of citizenship to the point where we aren't willing to spend $6 a week to stabilize a wobbling government? If so, that is truly is bizarre and off the wall.

 

- TF

 

 

 

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