This is the fourth part of our series examining the issue of taxes in the 2014 gubernatorial election. In part 1 we looked at Tom Wolf’s income tax plan. In part 2 we looked at the merits of a flat tax or progressive tax system. In part 3 we looked at legislative and legal hurdles to Wolf’s proposal. In part 4 we examine the record of incumbent Gov. Tom Corbett.
By Eric Boehm | PA Independent
Gov. Tom Corbett stood at the podium in the state Capitol media center, flanked by representatives of business, labor and government from all parts of Pennsylvania, to announce the biggest tax break in state history.
A few days later, the General Assembly approved the $1.65 billion tax break as part of the 2012 state budget.
But two years after his administration oversaw the passage of the largest tax break in Pennsylvania history, you should forgive most of the state’s taxpayers if they don’t know much about it. After all, they didn’t see a single additional dollar in their own wallets.
CORBETT: Gov. Tom Corbett has, mostly, stuck to his guns by not raising taxes on Pennsylvanians. But his administration has been criticized for handing out business tax breaks and economic development incentives instead of paying the state’s bills.
That’s because the huge tax break was given to one company, Royal Dutch Shell, as part of an incentive package designed to persuade it to build a so-called “cracker plant,” in the state’s industrial southwest corner, that would turn natural gas into petrochemical products. It was supposed to bring as many as 20,000 jobs.
“Even across party lines, even across the lines of labor and business, we all understand that this is an opportunity for the future of our state,” Corbett said at the time. “And it’s not an opportunity that comes along very often.”
It’s more than two years later and the plant isn’t built. Negotiations with Royal Dutch Shell continue, and the company has pledged it will eventually locate the facility in Pennsylvania.
Corbett may not get to see the project to completion. He faces the voters of Pennsylvania on Tuesday in a bid for re-election that’s also a referendum on his first term in office. The “no-tax pledge” that he signed during his first gubernatorial run in 2010 has been a central part of his policymaking, but while taxpayers have not seen broad-based tax increases over the past four years, critics say Corbett has short-changed the state by cutting business taxes and handing out special favors at the expense of other priorities.
His re-election campaign slogan reflects the goal of those policies: “More jobs, less taxes.”
“It’s something the governor says all the time: if you want less of something, tax it more,” Chris Pack, Corbett’s campaign spokesman, said last week. “If you want more of something, tax it less.”
Corbett has overseen reductions in the state’s capital stock and franchise tax, a tax paid by businesses on goods and equipment, in three of his four state budgets. The business community sees the tax as being particularly onerous and has welcomed the continuation of its phase-out — a process that began in the 1990s before Democratic Gov. Ed Rendell stopped it in the early 2000s.
But he’s also signed off on a growing number of business and corporate tax breaks — the one to Shell being the largest of the bunch — designed to help offset Pennsylvania’s onerous 9.99 percent corporate tax rate and allow businesses to grow and hire more people.
Other tax credit programs that apply purely to special interests — like the annual $60 million giveaway to Hollywood film studios and television producers, and the Keystone Opportunity Zone program that allows the state to give certain businesses tax cuts while those across the street have to continue to pay — have remained on the books or even grown during Corbett’s first time.
Nathan Benefield, policy director for the Commonwealth Foundation, a free market think tank, says those special tax breaks for certain industries go against the principles of fair tax policy.
“Lowering taxes for all businesses and families would be both fairer and better for job creation than politicians picking winners and losers,” Benefield said.
Wolf promises to take a different tack when it comes to tax credits.
OF TOMS AND TAXES: Tom Wolf, left, the Democratic candidate for governor in Pennsylvania, says the state’s richest residents should pay a higher share of the state’s education costs. He wants to implement a more progressive tax system to shift the burden away from property taxes. Corbett says he would consider tax increases for one reason only: to help pay down Pennsylvania’s massive public pension debt.
“He will review all of the State’s tax credits to ensure we are not just rewarding special interests. He knows we must ensure tax credits are rewarding businesses that are creating and maintaining family sustaining jobs,” said Wolf campaign spokeswoman Beth Melena.
Unemployment falling, but bills piling up
Corbett’s policies may have had a hand in lowering the state’s unemployment rate from 8.1 percent when Corbett took office in January 2011 to 5.7 percent in September of this year.
But job growth has been painfully slow at times, leaving Pennsylvania well behind most other states in climbing out of the hole created by the 2008 recession.
And while tax breaks have kept more money in businesses’ pockets, the state’s bills continue to grow. Pennsylvania’s public pension debt now tops $50 billion, according to the rosy projections provided by the pension funds themselves, and the state has not made a full annual payment to the pension funds during any of Corbett’s four years in office — continuing a trend on-going for more than a decade across four gubernatorial administrations.
The state is also facing a deficit of more than $2 billion next year, according to current projections from the Independent Fiscal Office.
Then there is the no-tax pledge, which Corbett signed during the Republican primary in 2010.
According to the terms of the pledge — a gimmick dreamed up by anti-tax crusader Grover Norquist and his organization, Americans for Tax Reform, to hold Republicans accountable for their sometimes-spendthrift ways — it does not expire when a politician wins re-election. Actually, it never expires at all.
But Corbett is already showing signs that he might have outgrown the pledge.
Pack said there would only be one reason for Corbett to consider tax increases as part of a second-term agenda.
“Pensions,” Pack told PA Independent last week. “We need to address the pension crisis, and part of that solution might involve new taxes.”
But Corbett would be “absolutely” against any increases to the personal income tax, Pack said.
Wolf has put an overhaul of the state’s income tax system at the center of his campaign platform, which the Democratic nominee says would ask those earning more than $70,000 to $90,000 to pay a higher share of their income to the state. He plans to use the additional revenue to spend more money on public education and reduce property tax bills.
Pack says the no-tax pledge was a way for candidate Corbett to introduce himself to voters and make it clear where he stood on fiscal issues. It has served its purpose, and now Corbett can stand on his own record of not raising taxes.
Technically, Corbett already violated the pledge three times: signing into law a new “impact fee” paid by gas drillers, giving his Department of Revenue greater leeway to pursue taxes from online retailers doing business in Pennsylvania and successfully pressuring the Legislature to approve a $2.1 billion transportation spending plan funded by higher gasoline taxes.
But he has generally lived up to the spirit of it by forcing the annual budget debate to keep spending in-line with revenue, a frequent refrain from Corbett administration officials.
Corbett has little to lose by abandoning the pledge if he wins re-election, because he’ll likely never face the voters of Pennsylvania again.