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									        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
                                                                                                $73.2 billion
                          Pennsylvania State & Local Government
 70
                             Spending 1970-2002 in billions
 60

                 Local Spending
 50              Non-General Fund                                                    Local Gvt. Expenditures
                 State General Fund
 40              Population
                 Inflation Growth
                                                                                                $45.6 billion
 30
                                                                             State Non-General Fund
 20
                                                                                               $20.9 billion
 10                                                                State General Fund

10M Growth of Inflation: Annual Average 4.9%
                                               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%                                                               76.7%
80%


                                                                                             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
30%
                                                                                                                                        US

25%

20%


15%

10%
                                                                                                                                3.13%
 5%

 0%

       Services              Retail Trade              Wholesale Trade                      F.I.R.E.                Manufacturing
-5%

                                                                                                    -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%
                                  82.63%                                                               US
                                                                                        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%                          26.2%
20%

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


740
              Government Employees

                                                                                        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             Top Rate          Highest CNIT Rates    Top Rate
West Virginia                      7.00 mills       Iowa                          12%
Pennsylvania (2003)                6.99 mills       North Dakota               10.5%
Louisiana                          3.00 mills       Pennsylvania                9.99%
Arkansas                           2.70 mills       District of Columbia      9.975%
Mississippi                        2.50 mills       Minnesota                    9.8%
Tennessee                          2.50 mills       Vermont                    9.75%
Kentucky                           2.10 mills       Massachusetts                9.5%
Alabama                            1.75 mills       Alaska                       9.4%
North Carolina                     1.50 mills       (Tied) New Jersey              9%
                                                    (Tied) Rhode Island            9%
US AVERAGE (2002)**                 0.75 mills      (Tied) West Virginia           9%
                                                    US AVERAGE (2002)          6.64%
* 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.
                   Total CSFT Cash Payments
                 by Industry, 1998-2002 (in thousands)
$1,000,000

                 21%                                                                                  Five year total:
                                                                                                      $4,160,295,000
 $750,000                    18%
                                                            $637M
                                             15%
 $500,000
                                                           12%           12%
                                                                                           11%


 $250,000
                                                                                                               6%
                                                                                                                                    1%             0%
                                                                                                                           4%
       $0
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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
                              $1.2B                                                    Five year total:
                                                                                       $6,606,997,000
                                  18%
$1,000,000
                                             15%

                                                          11%
 $500,000                                                                    9%           8%
                                                                                                                                    1%
                                                                                                             6%                                    0%

       $0
        $-
                                                                                                                          2%
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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.
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

$30,000
                                                                                                 $33,458


$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,




                                                                                     Caps
                                                                CA                <$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.   Limited to core government functions.
2.   Neutral among individuals and groups.
3.   Fair and equitable in decision-making.
4.   Simple and economical to administer.
5.   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

								
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