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Spending is saving?



August 26, 2010

“Sometimes you have to spend money to save money.” So said Pennsylvania’s Governor Ed Rendell at a Monday morning news conference in Harrisburg to detail his proposal to fund transportation projects in his state.

Specifically, Rendell wants the General Assembly to approve his plan for $1 billion in various taxes and fees on Pennsylvania oil companies and drivers to pay for roads, bridges, and mass transit. Rendell wants to slap Pennsylvania oil companies with an 8% gross profits tax and increase the driver’s license fee by $4 (from $28 to $32, which includes the mandatory photo charge). Additionally, Rendell would raise the car registration fee $13 (from $36 to $49) and increase the fee for inspection stickers $3 (from $2 to $5).

Based on the media reports, it appears the governor said little about how raising $1 billion in taxes now will save Pennsylvania taxpayers money later. In fact, Pennsylvania’s transportation secretary has suggested that it will take at least $3.5 billion to fully fund transportation needs going forward.  There is a huge gap between $1 billion and $3.5 billion, which will have to be bridged. Unfortunately, if history is any guide, that bridge looks like more tax hikes down the road.

Rendell also employed a fairness argument in defense of his oil profits tax proposal. He said, “megafirms such as Exxon and Shell often try to hide behind the image of small "mom and pop" companies while they rake in huge profits.” But this is not exactly accurate. Oil companies typically pay more in taxes than they make in profits. In a recent report, Scott Hodge of the Tax Foundation wrote, “[S]ince 1981, when the failed wind­fall profits tax was first enacted, federal, state, and local governments in the U.S. have collected more in taxes from the oil industry than the industry has earned in actual profits for its shareholders.”

As I pointed out in a recent blog post, more money, especially in the form of higher fees and taxes, is not the answer for better transportation in Pennsylvania. The Commonwealth Foundation reports that Pennsylvania ranks fourth in overall highway spending, yet has the worst roads in the nation. What Pennsylvania needs is reform in its transportation policies, including reform of prevailing wage laws, more privatization of services, and increased service sharing.

This is not the first time the governor has proposed increased taxes or fees to pay for transportation. Rendell proposed a tax on oil companies back in 2007, which went nowhere fast. Just a few weeks ago, Rendell targeted drivers with higher gasoline taxes and fees to pay for transportation projects. Clearly, he has not gotten the message. During his news conference, Rendell said, “The time to act is now.” Indeed. Let’s hope that the General Assembly swiftly and decisively rejects the governor’s proposal.


 

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