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Lame duck Rendell stumps for Pennsylvania tax increase

| Friday, Feb. 26, 2010

Christine Bethea, owner of the art and antique store Artica in the Garfield-Friendship business district, said she pays her corporate taxes faithfully.

She didn't realize until Thursday what a rarity that is.

Bethea was among about 20 business owners gathered at a Shadyside Borders bookstore to hear Gov. Ed Rendell decry a business tax structure that lets 71 percent of companies in Pennsylvania skip out on the tax. The system needs to change, Rendell said, if the state is to avoid a budget crisis in the next two years.

"When you hear how other people are slipping through the cracks, it's irritating," Bethea said. "Taxes are fair, but only if they are shared."

Rendell said he plans to campaign around the state in coming months, to drum up support for tax law changes outlined in his Feb. 9 budget address. The state cannot trim its budget enough to overcome a projected $5.6 billion shortfall that will hit after he leaves office early next year, said Rendell, standing at the intersection of bookshelves offering weight loss and self-help advice.

"There is a storm coming that will make what we have gone through the last two years look like a light mist," said Rendell, who shed about 60 pounds during a contentious 101-day impasse last year during which lawmakers cut the state budget by about $400 million.

This year's budget was balanced with $2.7 billion in stimulus money, which will not be available in 2011, creating a $2.5 billion budget hole. The next year, a sharp increase in state pension obligations will push the deficit to $5.6 billion, Rendell said. Discretionary spending accounts for just $5.5 billion of the state's budget, Rendell said. The rest is mandatory spending on things such as Medicare and prisons.

"So the politicians who say, 'Well, we can get out of this by just (cutting) the budget,' they're not telling you the truth," Rendell said.

Rendell wants to remove most of the 74 exemptions to the sales tax and eliminate some rules, such as one that allows corporations to set up headquarters in tax-haven states like Delaware to avoid paying Pennsylvania's corporate income tax. He would levy taxes on natural gas extraction from the Marcellus Shale formation, cigars and smokeless tobacco.

Taking a shot at candidates who sign pledges not to raise taxes, as Republican candidates for governor Attorney General Tom Corbett and Rep. Sam Rohrer have done, Rendell challenged them to "explain to voters why are you unwilling to tax big gas (and) big tobacco?"

"This is exactly the type of thinking by the governor and in Harrisburg that must end," Corbett's campaign manager Brian Nutt said in an e-mail. "It is simply outrageous to recklessly increase the size of government and then expect to pay for it on the backs of taxpayers and small businesses."

Neither Corbett's nor Rohrer's campaign identified specific cuts they would propose.

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-Delaware County, noted Rendell proposed an income tax hike last year, raising some of the same alarms about the deficit, but eventually backed off and signed a budget without such an increase.

Rendell could have avoided much of this by adopting cuts proposed by House Republicans last year, said Steve Miskin, the caucus spokesman.

"The governor chose to balance the budget on (temporary) federal money instead of making the tough decisions that needed to be made," Miskin said. "His answer was just to spend like a drunken sailor. ... No offense to any sailors."

Rendell acknowledged his tax plan faces bleak prospects. Raising taxes on businesses and eliminating sales tax exemptions — even for sectors as narrow as helicopter sales, an exemption added last year when the United Arab Emirates wanted to buy aircraft from a Pennsylvania manufacturer — likely won't get much traction in the Legislature during an election year, Rendell said.

He urged business owners to lobby lawmakers to support his changes.

"The Legislature has had a history of deciding not to do anything difficult today when you can do something more difficult tomorrow," Rendell said.

Additional Information:

More revenue sought

Gov. Ed Rendell stumped in Shadyside for changes to state tax laws he says are needed to help close multibillion-dollar budget deficits projected in coming years. The money from new and broadened taxes would be collected in a special reserve account and remain untouched until deficits accrue.

The tax changes:

• Expanding the sales tax and lowering the rate from 6 percent to 4 percent (7 to 4.7 percent in Allegheny County) • $1.4 billion

• Imposing taxes on smokeless tobacco, cigars and natural gas extraction from the Marcellus Shale formation • $500 million

• Eliminating corporate income tax loopholes • $230 million

• Eliminating an early-payment discount for vendor sales taxes • $150 million

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