Editorial: Rendell's last round

The $29.1 billion budget proposed by Gov. Rendell yesterday would bolster Pennsylvania's progress on education and create a tax system that's more fair.

After last year's rancorous 101-day budget impasse, officials in Harrisburg are pledging to play nicer this time. But the cast of characters is the same, and the issues haven't changed much.

There's a budget shortfall approaching $500 million. Republican legislators are objecting to commonsense taxes on cigars and natural-gas production. And Rendell has proposed an overall spending increase of 4.1 percent - difficult to justify in an economy with flat wages, high unemployment, and weak tax collections.

This looks a lot like the formula for another protracted stalemate.

In his final budget, Rendell's centerpiece is an increase of $354 million, or 6.4 percent, in basic public education subsidies. The governor's consistent focus on education has produced results, but in this economy, the generous increase should be offset with cuts elsewhere.

Rendell proposed a needed overhaul of the state's uneven sales tax, an issue that cropped up last year when legislators tried to tax cultural events. The governor wants to lower the statewide sales tax from 6 percent to 4 percent, but would tax many goods and services that are now exempt (although not the arts).

Consumers would pay sales tax on candy and gum, beauty services, tanning salons, basic cable TV, hygiene products, and newspaper and magazine sales - dozens of categories that are currently exempt. Food, clothing, and prescription drugs would remain untaxed. It's a sensible move toward a more fair system in an era that increasingly emphasizes services instead of goods.

Rendell tried to sell this proposal as something other than a tax increase, arguing that the average family won't pay more. That's not likely. The fact is, his expanded sales tax proposal would raise an extra $531 million in the budget year that begins July 1, and an additional $863 million in 2011-12. That money would be paid by consumers and businesses.

The governor proposed other taxes on items that should be taxed. Cigars and smokeless tobacco ought to be taxed, as they are in virtually every other state. The gold rush of natural-gas drilling should be subject to a severance tax, as in other states.

But Senate President Pro Tempore Joe Scarnati (R., Jefferson), who receives a gusher of campaign donations from the oil and gas industry, again was voicing objections yesterday. He is a compelling argument for campaign-finance limits.

Another action proposed by Rendell that is long overdue would be to close a tax loophole that allows corporations with headquarters outside Pennsylvania to avoid paying any state taxes on their activities here. The legislature ducks this issue annually.

Combined, these tax proposals would raise more than $2.2 billion over the next two years. Rendell would put that money in a reserve fund to help the state prepare for the loss of more than $2 billion in federal stimulus money next year and a $1.1 billion increase in pension obligations two years hence.

Republican legislators are vowing to scrutinize the spending side of the ledger, as they should. But Rendell has put forward a reasonable starting point.