THE HIGHLIGHTS of Gov. Rendell's budget address yesterday include an increase in education and medical assistance spending, an extension of unemployment benefits, a Stimulus Transition Fund to address what happens when $2.3 billion in federal stimulus money disappears, and a new tax to help close a $525 million deficit.
The new tax is a renewed call for a tax on gas extraction from newly discovered wells in the Marcellus Shale region. This is a must. Last year, the industry claimed an extraction tax would halt the growth of and industry in its infancy. That was before gas companies showed how robust their bottom lines are when an auction for drilling rights generated twice what the state had expected.
The Stimulus Transition Fund would be funded by eliminating 74 exemptions in the sales-tax code - ranging from fish food and coffins to dry cleaning and candy. By eliminating these exemptions, the state will still realize $1.2 billion over two years, even with an accompanying 2-point cut in the sales tax. (For a full list of exemptions, visit www.ourmoneyphilly.com.)
Eliminating these exemptions is, for the most part, a wise move; most exemptions represent nothing more than the influence lobbyists have on the legislative process. There's plenty of evidence of this in the disparate list of items currently exempt . . . and the weak defense some lawmakers are already offering for keeping them.
Tax policy should be left in the hands of the people we elect, not the well-funded trade associations and lobbyist groups. In such dire budgetary times, closing those loopholes is a fiscally sound move.
(Full disclosure: The list of "nonessential" items that could now be taxed include newspapers. We fault the governor for not seeing the distinction between fish food and newspapers in the maintenance of democracy, and on this basis oppose lifting that exemption.)
Food, medicine, and clothing will remain tax-free. Keeping those exemptions in place is the right move, especially in the middle of a tough recession. Buying essentials shouldn't cost more for Pennsylvania families and Rendell's proposal will keep those protections intact.
Rendell is right to acknowledge and deal with the loss of stimulus money, and use the opportunity to revisit tax exemptions that made little sense when they were instituted, and make even less sense in these hard times. *