Rendell: Lower the sales tax and end exemptions

This morning, Gov. Ed Rendell unveiled his $29 billion budget proposal to a joint session of the Pennsylvania legislature. In the speech, he praised lawmakers for cutting spending to deal with last year's budget deficit. However, he warned, trouble lies ahead:

Are we out of the woods? Not by a long shot. Despite all of our efforts, we have a projected $525 million deficit in this year's budget that will once again impact all of the spending decisions we make. And while our unemployment numbers are better in Pennsylvania than in many other states, job creation is still sluggish at best, and personal income tax revenues are not meeting our projections.


To deal with the shortfall, Rendell called on the legislature to support changes to the state tax code. His proposal is to actually lower the state sales tax by two percentage points, but end exemptions for 86 non-essential items such as fruit juice and candy bars. If the legislature passes the proposal, it would generate about $1.4 billion in new revenue each year. Rendell wants that money put aside to help offset the loss of federal stimulus dollars.

I urge you to enact these changes this year, and put those funds into a newly created Stimulus Transition Reserve Fund that cannot be tapped until July 2011. This idea is similar to the Rainy Day Fund that was so successfully championed by former Governor Ridge and this Legislature, and the rationale is sensible: let us prepare today for storms to come.

Rendell also told the legislature that he would revive his plans to tax smokeless tobacco and companies drilling for natural gas in the Marcellus Shale region. Rendell argued that these two items are only free from taxation because of the big power of special interests in Harrisburg.

There is little rhyme or reason why we tax some items or services and wholly exempt others, except that in years past someone lobbied to secure favored treatment for themselves at the expense of others. As the Pennsylvania Budget and Policy Center pointed out last year, a simple trip to the movies "provides insight into the patchwork nature of Pennsylvania's sales tax. The rental of the movies by the theater, the admission ticket and candy and gum purchased at the counter are all exempt from taxation. (But) popcorn and soda purchased at the same counter are subject to sales tax."

The legislature has a constitutional deadline of June 30th to pass a state budget. However, last year's process was delayed by more than 100 days because of political infighting.

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