Cronyism

VIDEO: Jonathan Williams Interview with Pennsylvania Manufacturers’ Association

American Legislative Exchange Council (ALEC) Tax and Fiscal Policy Director Jonathan Williams joined the Pennsylvania Manufacturers’ Association’s (PMA) Carl Marrara this week to talk about Pennsylvania’s economic competitiveness. Along with Art Laffer and Stephen Moore, Williams is a co-author of the 7th edition of the ALEC Rich States, Poor States report, which examines tax and economic policy in the states.

 

Williams points out in the interview that Pennsylvania is one of the more disadvantaged states in the country, in spite of moving up in the index in recent years. In the area of future economic outlook, Pennsylvania ranks 33rd, while in the area of current economic performance, it ranks 37th. Those numbers represent an improvement over 2010, when Pennsylvania’s outlook stood at a dismal 43rd.

Sales and property taxes in the state have gone down over recent years, while other states have become even most hostile to prosperity. Those convergent circumstances largely account for Pennsylvania’s improving performance. Similarly, state worker compensation costs remain above average, but they have also decreased.

Unfortunately, Pennsylvania has the second highest business taxes in the nation, second only to New York. And, unlike its neighbors to the west, Pennsylvania is not a right to work state. Indiana passed right to work legislation in early 2012, and was shortly followed by Michigan. Thus in spite of their similarities, Indiana placed 3rd for economic outlook, while Michigan placed 12th – far exceeding Pennsylvania’s performance.

A final hurdle that Pennsylvania will need to overcome going forward is pension reform. The state ‘s pension debt outweighs its assets by a combined $47 billion, and is anticipated to reach $65 billion within five years absent reform. Similar to other states, Pennsylvania legislators may consider enacting a plan that caps employee benefits in the defined-benefit system and have employees receive anything exceeding the cap in a 401(k) style defined-contribution plan. That would be a more long-term solution than attempting to borrow money without a plan to cover an ongoing shortfall.

Pennsylvania has made some progress, but residents are still fleeing the state, and economic activity is not as robust as it needs to be to foster long-term growth. Pennsylvania’s future standing is going to be mainly dependent on its legislature’s willingness to reduce the tax burden and engage in meaningful pension reform.


In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure …

+ Cronyism In Depth