Betting on an impasse

As your eyes engage this, the state legislature is down to a mere 48 hours and counting to solve the commonwealth's multi-billion dollar budget gap. The gap is more like a $3.2 billion canyon of a deficit.

If the legislature fails to pass the budget on deadline - and the odds are 3:1 at the state's casinos that they won't - state workers will forego getting paid until they do. State workers wouldn't be the only ones affected by a budget impasse, but by far, they are the largest group, since the commonwealth is the state's leading employer.

The last time a budget impasse did some serious lollygagging was in 1991, when state workers failed to get paid for six weeks. Three paydays came and went, eating up a chunk of the summer. The best part was when wages were finally disbursed, lump sums were in vogue. Such a maneuver made sure maximum taxes were levied on everyone's gross pay. You may have to pay taxes on earning, but sarcasm in this space is always gratis.

Why are the odds against the budget being passed at 3:1? For one thing, it's Harrisburg; secondly, it's politically motivated and thirdly, Gov. Ed Rendell is one politician with an addiction to spending.

Another budgetary red flag was hoisted when the Pennsylvania State Employees Credit Union (PSECU) notified its membership that loans would be available to state employees who participate in direct deposit. They did this in May, more than a month before the budget deadline. It isn't by accident that PSECU is one of the most successful credit unions in the country. Do they know something the rest of us don't?

State spending since Mr. Rendell was elected governor has increased by one-third. That's more than double the rate of inflation for the same period. Never in Pennsylvania's history has government spending multiplied so quickly. If you did that with your family budget, you'd be living under the Cameron Bridge.

The difference is this: When the state has money woes, it simply goes fishing in your pocket to solve them. And Mr. Rendell has a tackle box full of taxes to hook you for the difference.

Budget deficits are the result of one thing - too much spending. The thing about cutting deficits is that there are only two choices: Government can reduce spending, or government can raise taxes.

To say Mr. Rendell's track record is taxing would be an understatement. In 2003, Mr. Rendell and the legislature increased the income tax rate from 2.8 to the present 3.07. During the budget impasse of 1991, the rate went from 2.1 to 3.1 for the year and then to 2.8, where it remains. But if Mr. Rendell has his way, the personal income tax will rise by 16 percent. The Commonwealth Foundation projects such a tax would be equivalent to taking $1.5 billion out of the private sector. Moreover, Mr. Rendell wants state workers to take a 5-percent pay cut and wants unions to give back raises negotiated two years ago when concessions were already made.

Using the Pennsylvania State Tax Analysis Modeling Program (PA-STAMP), an economic modeling program, the Commonwealth Foundation projects that an increase in the income tax would result in 23,960 fewer jobs next year.

According to the Tax Foundation, overall, Pennsylvania shoulders the 11th highest state and local tax burden in the nation. None of this bodes well for jobs. Businesses respond to higher taxes by relocating to venues with lower tax rates. This is why Pennsylvania has been one of the largest out-migration states in the country, and the reason why the commonwealth is the state's largest employer.

Minnesota faces a similar budget deficit of $2.7 billion, but rather than raising taxes, Gov. Tim Pawlenty, who was on John McCain's short list for vice president, went through the budget line by line. In doing so, Mr. Pawlenty rebuffed raising taxes, comprehending what Mr. Rendell refuses to acknowledge - that raising taxes during a recession is an economic minefield in the making.

The state, unlike the federal government, doesn't print money, so your first wave of tax increases will be state and local, followed by your gluttonous Uncle Sam. After all, somebody has to pay.

As Mr. Rendell and the state legislature approach the final turn in this budget horse race, the favorite, "Budget Impasse," unfortunately looks strong. Betting against it would be as foolish as supporting any tax increase.

(Maresca, a local freelance writer, composes "Talking Points" for each Sunday edition.)

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