Transcript Document

SLAYING THE
SILENT KILLER
The Pennsylvania Manufacturers’ Association
October 2003
www.pamanufacturers.org
THE SILENT KILLER
Between 1970 and 2002, state and local
government spending far outstripped
population and inflation growth.
KILLER FACTS
 PA’s population grew by an annual average of
0.14% between 1970-2002 (US = 1.09%).
 US average annual inflation was 4.89%
between 1970-2002 and 2.46% from 1993-2002.
 State General and Non-General Fund nominal
spending grew by an annual average of 7.80%
between 1970-2002.
 State and Local nominal spending grew by an
annual average of 4.75% between 1993-2002.
THE SILENT KILLER
80
70
$73.2 billion
Pennsylvania State & Local Government
Spending 1970-2002 in billions
60
Local Spending
50
Non-General Fund
40
State General Fund
Population
Local Gvt. Expenditures
Inflation Growth
$45.6 billion
30
State Non-General Fund
20
$20.9 billion
10
10M Growth of Inflation: Annual Average 4.9%
State General Fund
PA Population (in millions)
12,335,091
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Agenda
1. PA’s Poor Economic Performance
2. High Government Spending & Taxation
3. PA Manufacturing Job Losses
4. Twelve Ways to Slay the Silent Killer
PA’s Poor Economic Performance:
Gross State Product (GSP)
From 1990-2001, PA’s economic output –
GSP – grew noticeably slower than the US
average.
Among the twelve states that are PA’s closest
economic competitors, PA’s growth rate was
2nd from last over the past 12 years.
PA’s Economic Competitor States (CS):
CA, FL, GA, IL, MD, MI, NC, NJ, NY, OH, TX & VA*
*As reported by the Pennsylvania Economy League.
Gross State Product, 1990-2001
120%
CS
PA
US
100%
77.6%
80%
76.7%
63.4%
60%
40%
20%
0%
GA
TX
NC
FL
VA
US
IL
CA
MD
NJ
MI
NY
PA
OH
CS
Source: Bureau of Economic Analysis, US Dept. of Commerce. NOTE: CS does not include PA.
PA’s Poor Economic
Performance: Job Growth
During the 1990s, Pennsylvania
lagged national growth in almost
every occupation. Pennsylvania is
expected to continue this trend.
PA and US Employment
Growth by Industry, 1990-2001
50%
PA
US
40%
30%
20%
10%
-7.40%
0%
Services
Retail Trade
Wholesale Trade
F.I.R.E.
-10%
-12.67%
Manufacturing
-20%
Source: BEA, BLS and the PA Dept. of Labor and Industry, Center for Workforce Development. F.I.R.E. = Finance, Insurance & Real Estate.
Projected PA and US Employment
Growth by Industry, 2000-2010
35%
PA
US
30%
25%
20%
15%
10%
3.13%
5%
0%
-5%
Services
Retail Trade
Wholesale Trade
F.I.R.E.
Manufacturing
-7.80%
-10%
Source: BLS and the PA Dept. of Labor and Industry, Center for Workforce Development.
F.I.R.E. = Finance, Insurance & Real Estate.
Personal Income Growth, 1990-2002
PA’s personal income growth: 65.97%
US personal income growth: 82.63%
Competitor States: 81.40%
PA had the 3rd lowest personal income
growth among Competitor States
Personal Income Growth,1990-2002
120%
CS
PA
100%
US
82.63%
81.40%
80%
65.97%
60%
40%
20%
0%
GA
TX
NC
FL
VA
US
MD
IL
CA
NJ
MI
PA
OH
NY
CS
Source: Bureau of Economic Analysis, US Dept. of Commerce. NOTE: CS does not include PA.
High Government
Spending & Taxation
Pennsylvania’s state and local FY 2001-02
nominal spending was at least $73 billion.
 State and local governments spent $5,934
for every man, woman, and child in the
Commonwealth (2002).*
Source: The Commonwealth Foundation. 2002 local government figures are estimates.
*This figure is a conservative calculation and does not include federal government expenditures.
High Growth of Real Government Spending for Both
Democrat and Republican Governors, 1970-2003
35%
30%
33.3%
25%
25.4%
20%
26.2%
15%
14.6%
10%
5%
0%
Shapp
Thornburgh
Casey
Ridge/Schweiker
Source: The Commonwealth Foundation. Data compiled from Commonwealth of Pennsylvania, Governor’s Executive Budgets, 1970-71 through 2003-04
For every 7.4 private sector
employees in Pennsylvania…
…there is one state or local
government employee.
Source: BLS.GOV. May 2003. Data not seasonally adjusted. State: 164,900 Local: 493,900 Private Sector: 4,905,000.
1990-2003: Private Sector employment grew 9.89%; PA State and Local Government employment grew 16.85%
In December 2002, the number of PA
federal, state and local government
employees passed the number of PA
manufacturing employees.
There are now more
takers than makers.
PA Government* Jobs vs.
PA Manufacturing Jobs, 2000-May 03
880
860
840
Manufacturing Employees
820
800
780
753,300
760
Government Employees
740
731,100
720
2000
2001
2002
2003
Source: Bureau of Labor Statistics. Data seasonally adjusted. May 2003 figures. *Federal, State, and Local.
In 2000, Pennsylvania’s business
taxes per employee were 158% of the
United States Average.
Source: PA Economy League
State & Local Business
Taxes Per Employee, 2000
$700
$613.17
CS
US
$600
PA
$500
$388.18
$361.91
$400
$300
$200
$100
$0
PA
CA
MI
NJ
IL
NC
US
NY
TX
FL
MD
OH
GA
VA
CS
Source: PA Economy League. NOTE: CS does not include PA.
Pennsylvania
…ranks 2nd in the nation in
corporate capital taxes (Capital Stock and
Franchise Tax - CSFT)
…ranks 3rd in the nation in
corporate income taxes (Corporate Net
Income Tax - CNIT).
…and West Virginia are the only states in the
Top 10 in the nation in rates of taxation on
both capital and income.
Pennsylvania Business Taxes
Highest Business Tax Rates* in America
Highest CSFT Rates
West Virginia
Pennsylvania (2003)
Louisiana
Arkansas
Mississippi
Tennessee
Kentucky
Alabama
North Carolina
Top Rate
7.00 mills
6.99 mills
3.00 mills
2.70 mills
2.50 mills
2.50 mills
2.10 mills
1.75 mills
1.50 mills
Highest CNIT Rates
Iowa
North Dakota
Pennsylvania
District of Columbia
Minnesota
Vermont
Massachusetts
Alaska
(Tied) New Jersey
(Tied) Rhode Island
US AVERAGE (2002)**
0.75 mills
(Tied) West Virginia
US AVERAGE (2002)
* Tax rates based on calendar year 2002, except PA's CSFT rate.
** Calculated using PA's CSFT rate of 7.24 mills for 2002.
Note: Pennsylvania and West Virginia are the only states on both lists.
Top Rate
12%
10.5%
9.99%
9.975%
9.8%
9.75%
9.5%
9.4%
9%
9%
9%
6.64%
Total CSFT Cash Payments
by Industry, 1998-2002 (in thousands)
$1,000,000
Five year total:
$4,160,295,000
21%
$750,000
18%
$637M
15%
$500,000
12%
12%
11%
$250,000
6%
1%
0%
4%
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Source: The Statistical Supplement for The PA Tax Compendium, Fiscal Year 2001-02. PA Department of Revenue, Bureau of Research, 02/2002.
Not classified: Companies that do not fit into the SIC code, listed an invalid code, or left the field blank.
Total CNIT Cash Payments by
Industry, 1998-2002 (in thousands)
$2,000,000
29%
$1,500,000
Five year total:
$6,606,997,000
$1.2B
18%
$1,000,000
15%
11%
9%
$500,000
8%
1%
0%
6%
re
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tu
Ag
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M
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Co
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tru
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sa
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in
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itie
s
Ut
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2%
$0
$-
Source: The Statistical Supplement for The PA Tax Compendium, Fiscal Year 2001-02. PA Department of Revenue, Bureau of Research, 02/2002
Not classified: Companies that do not fit into the SIC code, listed an invalid code, or left the field blank.
PA Manufacturing Job Losses*
228,300 PA manufacturing jobs have
been lost since 1990.
118,000 of those PA manufacturing jobs
were lost in 2001 and 2002 together.
123,800 PA manufacturing jobs have
been lost between January 2001 and
May 2003.
Source: The Bureau of Labor Statistics.
*A new standard of measurement, The North American Industry Classification System, went into effect in January 2003.
Administrative and warehousing jobs previously considered part of manufacturing were segregated out.
Pennsylvania Manufacturing
Employment 1990-2003
950
959.4
Jobs in thousands
900
850
800
750
738.9
700
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: Bureau of Labor Statistics. Employment is seasonally adjusted
Hypothetically, if Pennsylvania continued to
lose manufacturing jobs at the current pace
(May 2002-May 2003), all manufacturing in
the Commonwealth would be wiped out by
mid-February 2024.
Pennsylvania Average Annual
Salaries by Industry, 2001
$50,000
$40,000
$42,986
$42,225
Average PA Salary
$33,458
$30,000
$20,000
$10,000
$0
Manufacturing
State Government
Services
Source: Center for Workforce Information & Analysis, Pennsylvania Department of Labor & Industry. 2001 SIC figures.
Average annual wage = Total wages/Monthly average number of employees
The manufacturing industry has the
strongest multiplier effect on employment;
every time a manufacturing job is created,
between three and seven jobs result.
Twelve Ways to Slay
THE SILENT KILLER
12. Research & Development (R&D) Tax Credit
 PA’s R&D tax credit is capped at $15M and sunsets
after 2006. It is claimed against the CNIT, CSFT and
PIT.
 Increases in excess of base year R&D research
expenses within PA generates a 10% tentative
credit.
 For approved credits in 2001, manufacturers claimed
the largest share, over 69%, of approved credits.
 PMA recommends repealing the cap and sunset
provisions to increase the incentive for firms,
especially manufacturers, to expend resources on
R&D in PA.
11. Single Sales Factor (SSF)
 SSF would eliminate the increase in PA CNIT liability
that corresponds with an increase in payroll and
property (physical plant) investment in PA.
 Current PA CNIT liability is determined by weighing
payroll, property and sales factors at 20%, 20% and
60%, respectively.
 SSF would weigh the sales factor at 100%.
 PA would be the 11th state to enact a SSF.
SSF States: CT, IL, IA, MD, MA, MS, MO, NE & TX. WI signed a SSF into law in 2003 to be fully implemented by 2008.
10. Career Development Credit (CDC)
 Enacting the CDC – a job training tax credit - could
achieve better performance results relative to state
funded workforce programs.
 The CDC reduces the cost of private employee
training.
 PA would be the 19th state to offer a job training tax
credit.
 Funds for the CDC would come from the
approximately $400M allocated to the state’s 49
separate workforce development programs, which
should be reduced or eliminated.
9. Manufacturers' Investment Credit for PA
 20% credit for the costs of acquiring tangible
personal property, including machinery, equipment,
buildings and structural components of buildings,
used in manufacturing as well as processing,
assembling and research in PA.
 Non-refundable credit against the PA Corporate Net
Income and Capital Stock and Franchise taxes
where any unused credit would carry over for 20
years.
 PA would be the 14th state* to implement a
Manufacturers’ Investment Credit.
 This would encourage manufacturing expansion in
PA for economic growth and job creation.
*As of January 2003. Site: Area Development,Online, Site and Facility Planning.
8. Reduce the Corporate Net Income Tax to
5.99% This would place PA in a competitive
position by having a maximum rate below the
2002 U.S. average of 6.635%.
7. Continue and Accelerate the Phase-Out of the
Capital Stock & Franchise Tax (CSFT)
PMA recommends not only maintaining the
CSFT phase-out, but accelerating it so the tax
is repealed on or before 2009 as originally
signed into law.*
*CSFT is scheduled to be repealed in 2010.
6. Enact a Statute of Repose
 Establish a ten-year limit on the useful life of
manufactured goods.
 This would protect manufacturers from being sued
unnecessarily for products that exceed their functional
life and result in injury.
5. Unemployment Compensation (UC) Reform
 In 2001, PA Unemployment Compensation taxes were:
 3.6% of taxable wages – the highest in the nation.
 0.9% of total wages – 7th highest in the nation.
 Lower the UC tax to at least the U.S. average
of 1.9% (taxable wages) or 0.5% (total wages) and
review eligibility benefits.
4. Place Caps on Damage Awards
In 2002, lawsuits cost PA businesses $4.2
billion more than they did in states with a
$250,000 cap on non-economic damage
awards.
Amend the Pennsylvania Constitution to allow a
cap on non-economic damages.
Cap non-economic damages at $250,000 – the
same as California – or less.
Competitor States with Realistic
Caps on Non-Economic Damages
No Caps, 7
GA, IL, NC,
NJ, NY, OH,
CA
Caps
<$250,000, 1
FL, MD, MI, TX
Caps
>$250,000, 4
Source: US Dept. of Health & Human Services and ATRA.
Florida Cap: $500,000 Maryland Cap: $500,000. Michigan Cap: $280,000. Texas Cap: $750,000.
3. Enact Right-to-Work (RTW) Legislation
 A state with a RTW law cannot force an employee to
join or support a labor union as a condition of
employment.
 Between 1970-2000, RTW states created 1.43 million
manufacturing jobs, while non-RTW states lost 2.18
million. Pennsylvania lost 600,000 manufacturing jobs.
 There are 22 RTW states as of November 2002 make PA the 23rd.
 Enact paycheck protection: require union officials to
get a member's specific permission before charging
them the cost of any non-bargaining activities.
Source: The Commonwealth Foundation and PA Right-to-Work
2. Reduce Government Spending
Based on Sound Economic Principles
 From 1991 to 2000, PA had the 2nd largest
real per-capita state government spending
growth rate among the 50 states, at 61%.
 During that period, PA’s real personal income
growth rate per-capita was 19% below the US
average.
 Reducing excessive government spending will
keep resources in the private sector,
stimulating economic growth.
Government spending should be…
1.
2.
3.
4.
5.
Limited to core government functions.
Neutral among individuals and groups.
Fair and equitable in decision-making.
Simple and economical to administer.
Accountable to taxpayers.
Enacting these recommendations could save
PA taxpayers a little over $2 billion annually in
General Fund spending.
1. Enact Taxpayer Protections
 Tax and expenditure limitations (TELs) are
constitutional or statutory provisions designed so tax and
spending growth does not exceed the rates of inflation
and population growth or a given measure of statewide
economic growth.
 States with TELs generally have limited government
growth and experience more robust economic
expansion.
 “Super-majority” provisions require legislative votes
above a simple majority to raise taxes.
Between 1995 and April 2003…
…the 14 states with TELs and/or a super-majority
provision had an overall employment growth rate of
14.1% and a GSP growth rate of 44.1%.
…the 36 other states (including PA) had an overall
employment growth rate of 8.1% and a GSP growth
rate of 36.3%.
Source: Gulibon, Grant R. and Armstrong, Thomas O. “The Case for a Pennsylvania ‘Tax and Expenditure Limitation’.”
14 states with TEL and/or super-majority provisions: AR, AZ, CA, CO, DE, FL, LA, MS, MO, NV, OK, OR, SD, WA.
SLAYING THE SILENT KILLER
1. PA’s Poor Economic Performance:
Slow economic growth relative to other states
2. High Government Spending & Taxation:
Killing economic opportunity in PA
3. PA Manufacturing Job Losses:
Manufacturing is the keystone of the Keystone State
4. Twelve Ways to Slay the Silent Killer:
Enact reforms for a more robust economy
“Those who do not learn from the
past are condemned to repeat it.”
- George Santayana
SLAYING THE
SILENT KILLER
The Pennsylvania Manufacturers’ Association
www.pamanufacturers.org