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Pennsylvania Gov. Rendell says income tax increase a must

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By Brad Bumsted and Mike Wereschagin
Wednesday, June 17, 2009

Live as long as George Sipe, and income tax increases like the one Gov. Ed Rendell proposed Tuesday are cause for a chuckle and a shrug.

"If it's not him, it's going to be somebody else. They're always raising taxes," said Sipe, 67, of Avalon.

A Giant Eagle meat department manager, he postponed retirement two years ago because federal budget cuts resulted in his being denied veterans benefits for his Vietnam-era Navy service, he said. To get help, he said, "you've got to be poor and on the street."

Rendell proposed the $1.5 billion tax hike at Westinghouse Electric Co.'s new headquarters in Cranberry, saying the state needs to raise the tax rate to 3.57 percent to avoid deep cuts to education, health care and social services. The state faces a projected $3.2 billion budget deficit, Rendell said.

"We simply cannot achieve a balanced budget without additional revenue," Rendell said. He proposed stopping a planned cut in the business tax, known as the capital stock and franchise tax, scheduled for next year. He will outline to his Cabinet today $500 million in proposed cuts on top of the $1.5 billion he has proposed.

Both tax measures would last three years, Rendell said. Tax increases enacted during recessions in 1983 and 1991 were rolled back, but not to preincrease levels. Income taxes ended up 0.13 percent higher after the 1983 increase, and 0.6 percent higher after the 1991 increase.

Senate Republicans propose cutting $1.7 billion more than Rendell, but that leaves a $1 billion shortfall, Rendell said. The Senate budget guts economic development grants and tax breaks, Rendell said. Those programs helped keep Westinghouse — and its 3,700 jobs — in Western Pennsylvania, he said.

Republican leaders said they will oppose the tax increase.

An increase of half a percentage point raises tax bills by 16.3 percent. For a taxpayer earning $50,000 a year, that means $250 more annually.

"It's almost a 17 percent increase in the personal income tax," said Senate President Pro Tempore Joe Scarnati, R-Jefferson County. "This is a massive tax increase."

Two key House Democratic leaders back the governor's plan, giving Rendell a shot at garnering support in the chamber's dominant caucus. House Majority Leader Todd Eachus of Luzerne County and House Appropriations Chairman Dwight Evans of Philadelphia support the proposed income tax hike, their press secretaries said.

"Our members have been talked to. We laid out the situation to them," Evans said. "It's never easy when you are talking about raising taxes. The answer is, yes, it can be done. It's going to take a lot of work."

About 20 conservative Democrats in the state House met yesterday to "look at ways to avoid a PIT (personal income tax) increase," said Rep. Nick Kotik, D-Coraopolis, who organized the informal group. In the House Democratic Caucus, "I don't think there's anywhere close to the votes for a PIT increase," Kotik said.

In 1991, when taxes were raised by $3 billion, it took a lot of horse-trading. The state faced a $1 billion budget deficit then.

"It took almost $3 billion to make up the $1 billion shortfall to do the things (that) particularly the House Democrats said they wanted," said Vincent Carocci, former Gov. Robert Casey's press secretary. "If they were going to vote for these kinds of taxes, they wanted to bring something home with them."

It was mostly increased spending for education and health care programs, not capital projects. At the time, Evans was beginning his tenure as appropriations chairman.

Rendell on Monday will try to sell his plan to a joint closed-door session of House and Senate Democrats. "That should help us find out the temperature of the members," Eachus said.

Rep. Bill Kortz, D-Dravosburg, said he could go along with the delay in cutting business taxes. But when it comes to an income tax increase, Kortz said, "I'd have to sit down and take a good hard look at it."

Rendell's promise of an eventual rollback doesn't soften the blow, said Senate Majority Whip Jane Orie, R-McCandless.

"There is no such thing as a temporary tax," she said.

House Minority Leader Sam Smith, R-Punxsutawney, noted the Johnstown Flood Tax on liquor was enacted in the 1930s to pay for flood damage and remains in place today.

"Our taxes are already too high," said Stacy Plummer, 50, of Jefferson Hills. "People are taking pay cuts and cutting back. The idea of paying more ... it's disappointing."

Ray Barber, 40, of Chartiers wondered why taxes must increase while the state is receiving billions in federal stimulus aid.

Though concerned about paying more, Plummer and Barber said they're not sure what should be cut from the state budget.

"I think they get enough already," Barber said. "There's a lot of wasteful spending going on."

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