Buyer’s Remorse

(h/t Matt Yglesias)

Tom Corbett’s Government For Sale to the Highest Bidder

The news that Tom Corbett is allowing his top campaign contributors to run his transition team is so despicable that even the press arm of the right wing Commonwealth Foundation couldn’t help piling on:

Pennsylvania governor-elect Tom Corbett named the members of his transition team Wednesday, a group of 10 individuals who will guide the changeover from the administration of current Gov. Ed Rendell.

Though the positions are unpaid, the individuals included on the list are made contributions of more than $1.5 million to Mr. Corbett’s campaign since the beginning of 2009.

Transition teams are made up of political supporters of candidates who have won a new office. They meet with key members of the outgoing administration to discuss the status of budgets and various ongoing activities. They also size up which current employees might be retained in the new administration.

Christine Toretti, chair and CEO of the Indiana, Pennsylvania-based S.W. Jack Drilling Company, was named one of three co-chairs of the transition team. Ms. Toretti was one of Mr. Corbett’s largest donors during his gubernatorial run as she contributed more than $117,000 since 2009 to his victorious campaign.

The other co-chairs on the transition team are Jack Barbour, CEO of Ingersoll & Rooney, a Pittsburgh-based law firm, and Bill Sasso, chairman of the law firm Stradley Ronon, based in Philadelphia. The two law firms combined to contribute $148,000 to Mr. Corbett’s gubernatorial campaign.

Mr. Corbett, who made a name for himself investigating corruption in the legislative branch, appointed Bob Asher, the national committeeman of Pennsylvania on the Republican National Committee, as one of the co-chairs for his inauguration committee.

Mr. Asher, who personally donated $102,600 to Mr. Corbett’s campaign this year, was convicted in 1987 on charges of perjury, racketeering, conspiracy and bribery in connection to state contracts awarded to political favored individuals while he was chairman of the Republican State Committee of Pennsylvania. Mr. Asher resigned his position and served one year in prison.

Mr. Asher’s political action committee, Pennsylvania Future Fund, contributed $190,000 to Mr. Corbett’s election effort.

Laura Ellsworth, the other co-chair of Mr. Corbett’s inauguration committee, is partner-in-charge of the Jones Day law firm’s Pittsburgh office. The firm contributed more than $23,700 to Mr. Corbett’s gubernatorial campaign.

Predictably, Corbett’s governing agenda looks totally terrifying, as one would expect from a guy who does not understand the economy even a little bit, and views the recession as some kind of morality play.

Ed Rendell To Geoffrey Giraffe: Pay Up

Via PA Independent, Ed Rendell takes on the Geoffrey Giraffe loophole that allows 74% of corporations in Pennsylvania to pay zero corporate income taxes:

The report, issued Wednesday by The Tax Foundation, a nonpartisan research group, ranks Pennsylvania 26th across the nation for a favorable business tax climate. Despite being below the median, Pennsylvania ranks better than five out of six of its neighbors.

Pennsylvania ranks better than West Virginia, Maryland, Ohio, New Jersey and New York for business tax climate. Delaware ranks 8th. Mr. Rendell said Delaware is a “known tax haven.”

The foundation calculates ranking by business taxes in the state, but Pennsylvania is the only state with two taxes calculated together to determine the rate. Small businesses in the state pay the flat 3.07 percent income tax everybody pays, but corporations pay a separate net income tax of 9.9 percent, the highest in the country

Mr. Rendell disputed the effective corporate tax rate and said calculating for who pays the tax and how much is paid makes the actual corporate net tax rate 5. He said Pennsylvania’s true ranking might actually be in the top 15 states in the country, but he went on to advocate closing the Delaware loophole.

“I believe we should all pay our fair share of taxes,” said the governor. “It’s why I’ve worked so hard to remove the Delaware loophole that allows 74 percent of our corporations to pay no tax at all. That’s unfair to property tax payers, it’s unfair to individual income tax payers, it’s unfair to those businesses that do pay.”

The loophole allows companies to funnel revenue through Delaware to avoid Pennsylvania’s 9.9 tax. Combined reporting of revenue across states would close the loophole.

What is combined reporting?

Combined reporting requires multi-state corporations to report the income earned by both the parent corporation and all of its subsidiaries and to determine their income tax liabilities on that basis. As a result, combined reporting is the single most effective means of preventing corporations from avoiding taxation through accounting techniques designed to shift income from one state to another.

Basically, large corporations like Wal-Mart, Home Depot, and Toys R’ US (hence the Geoffrey Giraffe nickname), headquarter their parent companies in Delaware, and their subsidiaries – individual stores – pay the much 3.07% flat rate intended for small businesses.

The lack of combined reporting combined with a flat income tax gives Pennsylvania the dubious distinction of having one of the top 10 most regressive tax systems in the country:

In 2007, middle-class earners paid nearly double the share of their income in taxes than
the very wealthiest Pennsylvanians.
For minimum-wage earners, the share of family
income spent on taxes was even larger…

Pennsylvania families earning less than $19,000 – the poorest fifth of Pennsylvania taxpayers – pay 11.3 percent of their income in Pennsylvania state and local taxes. Middle-income Pennsylvania taxpayers – those earning between $35,000 and $56,000 – pay 9.6 percent of their income in Pennsylvania state and local taxes.

The richest Pennsylvania taxpayers – with average incomes of $1,369,600 – pay only 5
percent of their income in Pennsylvania state and local taxes.

After accounting for federal deduction offsets, the discrepancy is even starker: the poorest fifth pay 11.2 percent of their income in state and local taxes, middle-income families pay 9.1 percent, and the richest Pennsylvanians pay 3.9 percent. Washington, Florida, South Dakota, Tennessee, Texas, Illinois, Arizona, Nevada, Pennsylvania, and Alabama were named as the 10 Most Regressive Tax States. Pennsylvania ranked ninth.

“No one would ever design an income tax with lower tax rates for the best-off taxpayers,” said Matthew Gardner, ITEP’s executive director and lead author of the study. “But that is exactly what Pennsylvania’s tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle- and lower-income families must pay.”

Here’s some tables if you want to get wonky.

It’s a really too bad that Dan Onorato missed the opportunity to take this up as a populist crusade during the campaign. If he would have run on a plan simiilar to the ballot initiatives hiking taxes on the rich that passed by huge margins in Oregon, he would have had a really potent issue on his hands.

If Dems Turn Out, They Win

Check out the likely voter vs. registered voter gap. The more registered voters turn out, the more likely Democrats are to win the Governor race and Senate seat:

                               LV   RV
Governor
Dan Onorato (D)     45    48
Tom Corbett (R)     52    46

Senate
Joe Sestak (D)        45    47
Pat Toomey (R)      49    43

Anti-Tax Politics and Policy Inefficiency

The recent Gubernatorial debate illustrates how tax phobia and dumb political constraints lead to extremely inefficient policymaking. Here’s the key bit from Tom Infield’s piece:

Corbett, in what he said would be a surprise to the audience, agreed with Onorato that Pennsylvania needed to substantially increase its funding for prekindergarten schooling. That has been a plank in Onorato’s campaign platform for a long time.

Noting his position as attorney general, the state’s top law enforcement officer, Corbett said: “As somebody on the other end, who is putting people in jails, a lot of it has to do with education.”

Besides increasing funding for early-childhood education, Onorato proposed to continue a program through which the state has increased its support for basic public education little by little over several years. Stopping the program, he said, would add pressure on property taxes.

Corbett said he could not commit to increasing education support, to which Onorato retorted: “Tom is going to push it down to school districts and raise property taxes.”

The two men agreed that while facing billions of dollars in unfunded pension obligations, Pennsylvania could not afford to continue all benefits paid to teachers and state workers. But they disagreed on how to fix the problem.

Onorato said he would keep the sort of defined-benefit pension plans that workers have had for decades. But he said he would roll back the 25 percent hikes that he said a “greedy” legislature had given to itself and other state employees in 2001.

Corbett said full pensions would be out, at least for new employees. Workers would have defined-contribution plans similar to the 401(k) plans available to many workers in the private sector, he said.

Both candidates said court rulings appeared to make it difficult for the state to change the benefits promised to existing workers.

First of all, I don’t see how either candidate can promise to increase funding for early childhood education while simultaneously promising to balance a $5 billion deficit entirely throughout spending cuts. Remember that Corbett is talking about across the board cuts.

But back to the point, Onorato is exactly right about the effect on local property taxes. If the state keeps its education outlays constant, but school budgets still grow every year (as they should when the number of students grows)it’s obvious where schools are going to have to make up the difference. But local property taxes are much less efficient, and much less fair, way to pay for education. So the dumb anti-tax politics aren’t actually keeping taxes down – they’re just passing the buck and harming education outcomes in the same stroke.

It’s the same thing with pensions. Giving raises to state employees and politicians is terrible politics, so states have come up with a much more inefficient system of deferring that compensation with very generous defined-benefit pensions which they then proceeded to chronically underfund. The better policy would have been to ignore the bad politics and give public workers more take-home pay but less-generous defined-contribution pensions. Instead, political cowardice led state legislators to push pay raises into the future, creating a disaster that is now coming back to bite us in the ass.

Neither candidate is offering an adequate solution here. Onorato is clinging to defined benefit pensions, and Corbett wants to switch to defined-contribution plans without raises, which would be the equivalent of a huge back-door pay cut for public workers.

We also saw this with Corbett trying to get around the No-Tax Pledge on technicalities by claiming that fees aren’t taxes, or that payroll taxes aren’t taxes. This is insane. Bending over backward to avoid the anti-tax politics is producing worse outcomes, and isn’t even saving taxpayers money.

Tom Corbett and the Hershey Trust

Without necessarily endorsing the CasablancaPA blog as a source you should uncritically accept reporting from (as its been the subject of some controversy this year), I want to highlight this post because the author brings up an issue that deserves more press scrutiny:

Time for another quiz! What do legislative Republicans and two Republican District Attorneys have in common with The Hershey Trust?

The investigative arm of the Tom Corbett for Governor campaign announced this week it is investigating the Hershey Trust – more than four years after its purchase of a failing golf course, for as much as triple its value. The purchase directly benefited a trustee who was an investor in the club.

Activists have been begging Corbett to investigate the trust for this and other questionable decisions for five years.

It was only after a scathing front-page article appeared in the state’s largest newspaper, a month before the gubernatorial election, that Corbett grudgingly announced he will investigate.

Watchdog group Protect the Hershey’s Children called the announcement “political theater”

“A month ago, the Attorney General issued a public statement belittling our concerns and calling PHC’s allegations ‘nothing new,’ just as he has done for six straight years. Now he claims that he was actually investigating at the time and asks us to believe that the timing of his ‘investigation’ has nothing to do with his election bid. This is political theater at its most absurd. We hope that Pennsylvania voters, Republican and Democrat alike, will see through this flimsy ruse.”

Why did candidate Corbett wait so many years to initiate an investigation?

For starters, the Chairman of the Board of the Hershey Trust is Republican former Pennsylvania Attorney General Leroy S. Zimmerman.

In January, Campaigns & Elections named Leroy Zimmerman one of the Top Republican Influencers in Pennsylvania. PoliticsPA describes GOP fundraiser Zimmerman as “a power broker in Central Pennsylvania” who “contributes heavily to state and national Republicans.”

Payroll Taxes Are Taxes

Tammy Alonso:

As I pointed out in last week’s post, Tom Corbett’s answer during last week’s gubernatorial debate that he would repay federal government aid to the state’s unemployment fund by decreasing unemployment benefits and increasing payroll contributions amounts to an acknowledgment that taxes may go up.

And this came from the candidate who keeps touting his promise to “never raise your taxes,” apparently come hell or high water, no matter what kind of economic difficulties the state, country or world may face over the next eight years.

Now, the Corbett camp is laughably trying to get itself out of another verbal gaffe on the part of its candidate, by ridiculously trying to claim that employee payroll taxes are not taxes at all but “contributions.”

Yeah, right—somehow I don’t think Pennsylvania workers see it that way. Not to mention the fact that both the state and U.S. Supreme Courts have interpreted “contribution” to mean “tax.”

But Corbett’s unintentional admission brings up a couple of points.

First, despite the GOP’s pandering rhetoric about “decreasing spending” and “decreasing taxes,” there are financial and economic realities that must be faced and dealt with, sadly for those who’d like to swallow this pabulum whole without looking too closely at the details.

And second, while Corbett seems intent on keeping his “no tax increase” pledge to businesses, he doesn’t seem to mind at all asking working Pennsylvanians to make still more sacrifices to meet the state’s obligations while continuing to let his corporate benefactors slide on carrying their fare share of the burden.

There should not be a payroll tax hike until we get rid of Geoffrey Giraffe, until we clean up all the crazy tax expenditures, until we have a severance tax on fracking, until we raise the gas tax, until there is a tax on soda, and until we raise taxes on cigarettes and alcohol. In my view all of these are better, and less damaging to the economy than raising payroll taxes and cutting unemployment benefits.