Guv: Tax hike the 'right' thing; GOP: It's DOA

Read his lips: New taxes.

In a post-Reagan era in which any kind of major tax increase is considered political suicide, Gov. Ed Rendell - a lame duck barred from seeking another term in 2010 - shook up Pennsylvania politics yesterday with a proposal to do exactly that.

The two-term Democrat said yesterday that the only way for the state to balance its budget in the face of the worst economy since the Great Depression is through a three-year, 16 percent income tax hike that would bring the levy to 3.57 percent.

"The simple truth is, we have no good choices," Rendell said yesterday. "There are no shortcuts out of this crisis, no magic bullets, no painless path out of this morass. We can do the easy thing for the moment or the right thing for Pennsylvania's future."

Not everyone agrees, though. Does this plan have a snowball's chance in Harrisburg? We try to break it down.

Q. Why is Rendell doing this?

A. Unlike the federal government, Pennsylvania (as are most states) is required to balance its budget every year, and that is proving difficult to do for 2009-10 because of the recession, with rising joblessness cutting deeply into state revenues.

Currently, officials say that the gap between what the state is likely to take in during the next fiscal year and what it's projected to pay out is a whopping $3.2 billion.

What Rendell proposed yesterday is a budget plan that would close roughly half that hole through a temporary three-year hike in the state income tax from its current 3.07 percent to 3.57 percent, which would raise an estimated $1.5 billion annually.

Q. That's a pretty nervy move - will it fly politically?

A. Well, Rendell is constitutionally barred from seeking a third term, which gives him a bit of political freedom to risk offending voters. Not so for the state's lawmakers, however, and Republicans - who still control the state Senate despite recent gains for the Democrats - have called the tax plan dead on arrival.

"Many taxes that we currently have on the books, when they were first proposed, were proposed as temporary taxes," the Senate Majority Leader, Republican Dominic Pileggi, of Delaware County, said, adding that there's no support in his caucus for the Rendell plan. "The unfortunate tendency is, once taxes are imposed, they stay in place."

He said that a personal income-tax hike will, over time, make the state less competitive and result in lost jobs.

Q. Really? So what's the Republicans' plan? Do they have one?

A. Yes. The GOP plan - about $1.7 billion less costly than Rendell's proposed budget - relies almost exclusively on spending cuts in areas such as education and public welfare. It's already been voted down by a key committee in the state House, a sign of growing gridlock.

Q. So why does the governor even propose a tax increase if the votes aren't there?

A. It's a negotiation, and every negotiation has to have a starting point. The ultimate target - assuming that this goes down like past budgets talks - is a compromise that includes some level of tax increase, but a lower one for which which lawmakers can claim credit.

Q. Isn't it kind of late to be doing this?

A. Yes. The budget is supposed to be in place for a new fiscal year that starts on July 1, but it's highly unlikely that that will happen. Some are already suggesting a temporary budget bill that will allow Rendell and lawmakers some extra time to reach a deal. The governor has said that he waited until the last possible minute to come out with the tax plan to see how bad the economy would get.

Q. What are all the political ramfications?

A. As noted earlier, none, really, for Rendell himself, but Democrats - who've been hoping to break Pennsylvania's long-term pattern of trading the governor's mansion with Republicans every eight years - can't be happy about getting linked as a party of higher taxes.

Q. Aren't Pennsylvanians taxed at a pretty high rate already?

A. Arguably, yes, although the answer depends on which statistic you choose to rely upon. The current flat income tax of 3.07 percent is the 40th highest rate among the states that have an income tax, according to the Tax Foundation.

However, the same group says that the overall burden for Pennsylvanians of state and local taxes - include sales and property taxes - is above the national average, and places the Keystone State as 11th highest in the United States. *

The Associated Press and staff writer John Baer contributed to this article.