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Tuesday, August 22, 2017

A Lesson on Tax Hikes from Pennsylvania

Today, we are taking a trip to Pennsylvania. I invite all the tax-hiking members of our state legislature to come along. They might learn a thing or two about the negative impact that higher taxes have on an economy. 


After 70 years in business, the CC Orlando & Sons family bakery in Overbrook is closing. It’s not that customers lost their sweet tooth; Philadelphia’s new “soda tax” drove them away. Though many politicians love to deny it, higher taxes have real negative consequences for families and businesses. Unfortunately, Philadelphians are no strangers to burdensome taxes. From the soda tax to the cigarette tax to the city wage tax to the realty transfer tax, the City of Brotherly Love loves taxing its residents and workers. Just look at the businesses setting up shop across City Avenue to escape Philly’s myriad taxes. 
This is a point worth taking home to Wyoming. City Avenue marks the north-western boundary of the city of Philadelphia. The west side of the avenue belongs to other towns with lower taxes. Technically, a business can move from the east side of the avenue to the west side and thereby escape the city of Philadelphia's insatiable thirst for more taxes. 

Just as the city of Philadelphia is taxing itself into irrelevance, there comes a point when the state of Wyoming does the same. Today, residents of the Nebraska panhandle travel to Cheyenne to shop at Walmart, Sam's Club, Home Depot and Barnes and Noble. But when our state, Laramie County and the city of Cheyenne all together have drawn enough tax blood from the private sector, those trips will no longer pay for themselves.

Imagine big box stores setting up shop in Sidney, NE and we here in Laramie County make the trip there to fill up the truck once a month. Or imagine when lower taxes allow a car dealership in Spearfish, SD to outprice competitors in Buffalo and Gillette. 

Back to Nathan Benefield:
In July, the state Senate narrowly passed a $600 million tax-hike package that would slap additional taxes on things like home heating bills, electricity, and even cellphone service. ... Senate supporters — who narrowly passed the tax bill with almost no debate — claim these taxes will help close a budget gap ... In reality, these higher taxes will harm most Pennsylvanians while leaving the budget crisis unresolved. In fact, the increase would cost 3,600 jobs and $932 million in disposable income, according to an economic analysis by the Beacon Hill Institute
The Commonwealth Foundation has published the results of that analysis. I am familiar with how the Beacon Hill models work. Unfortunately, Benefield misrepresents the analytical results: due to how the Beacon Hill model is set up, its forecast is not one of an absolute loss of 3,600 jobs, but a loss compared to a projected growth trend. This difference is important in the evaluation of the forecast; by leaving out the actual properties of the forecast, Benefield risks losing more credibility than he stands to gain from this forecast.

That said, there is no doubt that tax increases have negative effects on an economy. Correctly interpreted, the Beacon Hill analysis of the Pennsylvania economy is a reliable argument for the erosion of the same tax base that the Keystone State governor and tax-hiking legislators are out to profit from. 

Benefield concludes by pointing out that state government spending consistently outgrows personal income. With a different tax base, Pennsylvanians use other metrics for over-spending than we do here in Wyoming, but his point is still valid to us. We rely to heavily on severance taxes, but the fault is not necessarily a slanted tax base. (I am in favor of a redesign of that base, but only after the implementation of substantial structural spending reductions.) Any tax base can afford a government, provided that government is ready to adjust itself to the ups and downs in that tax base. 

Here, we have the real problem in Wyoming, and it is one that we share with Pennsylvania and many other states. Our government and its stewards - our elected officials - treat government as though it should be impervious to the business cycle of the private sector. 

This mentality has to change, and it has to change now. We the taxpayers buy services from government; just like we have to downsize our living when we lose income, or trade in a big car for a small one, we also have to downsize the government be purchase by means of the taxes we pay.

1 comment:

  1. What is the sales tax on both sides of that street. And what is the difference in property taxes between the two. More specifics please to better understand the impact.

    ReplyDelete