Will Corbett Support His Commissions’ Recommended Tax Increases?

This weekend we learned that Tom Corbett’s Marcellus Shale commission, despite its lopsided representation from the natural gas industry, will apparently be recommending some form of tax fee on fracking in addition to the odious practice of forced pooling. Here’s Angela Couloumbis and Laura Olson at the Inquirer:

Gov. Corbett’s advisory panel on drilling in the Marcellus Shale endorsed a long list of recommendations Friday on how to deal with the burgeoning industry, including imposing a local impact fee – not a tax – on the extraction of natural gas.

The 30-member commission also tacitly threw its weight behind the controversial practice of “pooling,” which effectively allows a drilling company to force holdout landowners to lease their below-ground gas rights under certain circumstances.

Today we learned that Corbett’s transportation funding panel recommends an increase in the gas tax, in addition to various fee increases:

The commission urged legislation to increase the cost of titles, inspections, driver’s licenses, and other documents in line with inflation. It said the move would raise $412 million in the first year and $574 million by the fifth year. The panel recommended increasing passenger-vehicle registration costs by $13 and four-year driver’s license fees by $4. Drivers would also be charged a $10 local registration fee.

The panel also suggested readjusting the wholesale gasoline tax, capped at $1.25 in 1993. That could bring in an extra $1.4 billion of revenue per year, according to the commission.

If properly adjusted for inflation, the tax would be increased by $1.43. The commission estimated that this would increase gas prices by about 22 cents per gallon this year.

An increase of 22 cents per gallon, around $36 a year, is a very smart way to raise $1.4 billion a year with minimal cost to economic growth. The state’s gas tax is already very low, and on balance, the gas tax policy should be encouraging less carbon-intensive ways of getting around. It’s a good thing if some people drive less as a result of the tax increase.

Likewise, taxing fracking is a very sensible way to raise revenue. I’m opposed to anything other than a statewide severance tax, but the fact that an industry-dominated panel recommended any kind of tax just goes to show how obvious a revenue source this is, and how extreme Corbett’s position is.

But Tom Corbett is unlikely to support any sensible suggestions for closing the state’s revenue shortfall, because his boss Grover Norquist has veto power over the majority Republicans, and Norquist doesn’t believe in “budgeting.”

Bernie O’Hare Is Not a Smart Man…

Bernie keeps saying that relatively high property taxes cause poverty. This is incorrect. He’s mistaking correlation for causation, and then drawing the causal lines the wrong way.

It’s especially frustrating to have to correct this, because he really does know better. A few months ago Bernie and I were at the same brown bag lunch discussion on municipal finance in Pennsylvania.

We I learned that city revenue comes primarily from real estate taxes, while Second Class township revenue comes mostly from Earned Income Taxes:

This trend has accelerated over the past 4 decades:

Bernie’s “analysis” strangely only looks at taxes on real estate, and ignores all other kinds of taxes.

This is a significant error, especially because we I also learned that all Pennsylvania municipalities follow a predictable path to fiscal decline:

Wealthier residents move toward the periphery chasing the mirage of lower taxes. City populations shrink and the people left behind are poorer on average. But services still need to be provided across the same geographical area, so each city household must pay more for the same services.

The actual problem here is that all the arbitrary political borders create perverse incentives to shuffle wealth around within the region, to the detriment of the cities and the regional economy. If taxes are too high in the cities, it’s because they’re artificially low in the townships. The solution is a regional tax base.

As a general rule of thumb, great skepticism is in order whenever you see Bernie wielding numbers.

It’s a Revenue Problem

The conservative talking point “We have a spending problem, not a revenue problem” is meant to preempt this basic fact about the deficit, as a way to rule tax increases out of hand. But it’s a lie.

Where’s the Growth?

Low marginal tax rates correlate with weak growth:

That’s not an argument that higher rates lead to stronger growth, but it does put the lie to the conservative dogma that low marginal rates increase revenue by boosting growth. They do not. As former Reagan staffer Bruce Bartlett is constantly pointing out, “the truth is that no serious Republican economist has ever said that a tax rate reduction would recoup more than about a third of the static revenue loss.”

Where’s the Growth?

It’s the 10 year anniversary of the Bush tax cuts, so where’s the growth?

Republicans sold the tax cuts as a plan to increase long-term economic growth, but there’s no results to show for it besides a bigger deficit and stagnant wages. Is this a 20 year project? A 30 year project? Come on. It doesn’t work.

And yet House Republicans are doubling down on this agenda, and Tim Pawlenty is tripling down on it.

Why?

The Unfair Tax

Since there seems to be some appetite for tax changes in Harrisburg, it seems inevitable that some rightwingers will come out with a Fair Tax proposal. So it’s worth pointing out what a terrible idea that would be. This is a chart about federal tax changes, but the impact would be similar at the state level. You’d be talking about a massive regressive transfer from the middle class to the wealthy.

Minimum Pricing for Alcohol

Read this Keith Humphreys post before you read this post I wrote over at Keystone Politics:

Last fall I wrote in some detail about “minimum pricing” of alcohol, an innovative approach to reducing high-risk drinking. At the time, minimum pricing was attracting support from a number of public health and public safety experts in the U.K. To recapitulate the key points, very heavy drinkers shop around for cheap booze, and as a result pay substantially less for each unit of alcohol consumed than does the rest of the drinking population. In the U.K., this typically involves going to a supermarket and buying high alcohol content drinks at low prices – indeed sometimes the alcohol is sold below cost as a loss leader for the store. Whereas an excise tax falls to varying degrees on all drinkers, minimum pricing concentrates its effect entirely on the high-volume alcohol consumers who experience and cause the most damage. A further advantage of minimum pricing is political: Because it isn’t a tax, it draws less opposition from many retailers and members of the public.

From the perspective of economic efficiency, I think it makes the most sense to do this through taxes. It would be better for the economy and better for public health if the state collected more revenue from problem-drinking and less revenue from things we want to see more of, like sales and investment.