Rendell proposal to cut, expand sales tax on hold

HARRISBURG - Gov. Rendell acknowledged Thursday that his plan to reduce Pennsylvania's sales tax and boost revenue by extending it to more goods and services is doomed - at least in this election year.

"It's just very complex, and you'd be stepping on the toes of a lot of special interests. I don't think there's an appetite to do that this year," he said at a news briefing.

In his February budget address, Rendell advocated cutting the tax rate from 6 percent to 4 percent and extending it to dozens of items now exempt, including many professional services, home electric bills, candy, firewood, and personal-hygiene products.

The sales-tax overhaul, expected to generate more than $850 million, had been the centerpiece of a larger package of tax changes.

Rendell originally proposed setting aside all of the revenue from those changes until July 2011 - six months into the term of his successor - to help blunt the expected loss of federal stimulus aid and a spike in public pension costs.

But lagging tax collections have left the state with a $1 billion-plus shortfall for the budget that runs through June 30, and he has said some of the proposed new tax revenue might be needed earlier to avert a deficit.

Serious discussions about how to deal with this year's shortfall and how to balance the budget for the new fiscal year have yet to begin. Rendell has proposed $29 billion in spending for fiscal 2011, a 4 percent increase over this year.

His revenue proposals would impose a severance tax on natural-gas extraction, extend the tobacco tax to cigars and smokeless tobacco, close a loophole that allows many companies to escape the state's corporate net-income tax, and eliminate a 1 percent incentive for retailers who submit sales-tax money on time.

Erik Arneson, a spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware), said GOP senators were willing to discuss a severance tax on gas drilling. He said he did not detect Senate support for Rendell's other tax proposals.