Senator Lloyd Smucker

Floor Remarks - Be Cautious About Spending And Taxing

Before coming to the Senate, I owned and operated a small business for twenty-five years. Old habits dying hard, I tend to think about taxing and spending issues in economic terms rather than political terms. Given the tough economic and fiscal circumstances confronting families, communities, and the Commonwealth, our decisions in the coming weeks need to reflect hard economic realities, rather than political wishing and hoping that things work out.

One thing you quickly learn around here is that state government does not much resemble a business. But state government could very much benefit from the application of sound business practices. Outside of government, any business where the money going out the door is more than the money coming in will not be in business very long. State government is not going out of business. But spending beyond reliable revenue receipts will cause economic harm.

Many of us ran for office promising taxpayers that we would do things differently. We may not have expected the biggest test to come so soon, but here it is – a record budget deficit. So this is our time to make our actions match our words.

In the modern era, Pennsylvania has never tried to deal with a severe budget crisis by spending less. If there has been a sure thing in Pennsylvania politics, it is that when revenues go down in a big way, state taxes are increased in a big way. In 1977, in 1983, in 1991, in 2003, each time state taxes were increased substantially. Each time, Pennsylvania was relatively slow to experience economic recovery. There is a connection; it is not just coincidence. The track record on tax hikes shows it is time to try cutting spending instead.

Too much spending is an aggravating factor in economic distress. In 1991, the most notorious budget crisis prior to this one, state spending was kicked up over 14%. It was a huge gamble, that the economy would pick up and the revenue start rolling in again. But our job growth did not match that in other states. This time, there is zero revenue growth projected for the fiscal year just underway. We surely cannot afford to increase taxes, to fuel spending, and end up further weakening the economy. To prevent tax hikes, to encourage economic growth, we must spend much less than Pennsylvania has in recent years.

Pennsylvania's tax structure already makes it harder to hold jobs and to attract new enterprises. So if state taxes would be increased, when many states are closing their budget gaps without general tax increases, our disadvantage gets worse.

This is not just a theory. We have all heard that imposing a severance tax now, as Governor Rendell desperately wants to do, would throttle the anticipated development of the Marcellus Shale and stunt a promising expansion of a major industry.

In my district, saying "no" to tax increases is an easy sell. The majority of people believe that state government is too big, that our taxes are too high, and that there is too much spending. Being hit by higher energy costs, transportation costs, health care costs, education costs, just about everywhere they turn, people are in no mood to have Pennsylvania pile on with higher taxes.

As we work to responsibly solve this budget problem, there are a few points to remember that have nothing to do with numbers.

Nothing we do or say suspends the laws of economics. It does not matter that the deficit is deep, or that intentions are good, or that Governor Rendell finds novel ways to frame the argument. Big tax increases will have serious economic consequences.

Economic recovery depends on the spending decisions made by millions of consumers and investors. Their decisions are partly economic calculation, and partly confidence. If in this budget crisis we make the same mistakes that were made during previous crises, then that will reduce public confidence in Pennsylvania and the future. Raise taxes, and expect to see spending diminished, investment discouraged, and recovery pushed off.

Those who criticize our "no tax increase" position try to chalk it up to politics or philosophy. But it is really practical economics. Most people want this budget settled consistent with their pocketbook concerns, not our political concerns.