November 28, 2005

Pennsylvania Seeks to Limit Tax Expenditures

Looking to implement property tax cuts across the board throughout the state, lawmakers in Pennsylvania are seeking to close many of the loopholes, deductions, and special exemptions that shrink the base and require high rates on all taxes. From Phillyburbs:

The term itself – “tax expenditures” – suggests something that needs reining in. And some legislators believe that’s exactly what is needed. In fact, it’s a catchall phrase the state government uses to describe the tax credits, deductions, exemptions and exclusions that allow Pennsylvania taxpayers to legally sidestep at least part of what they otherwise would have to pony up to the commonwealth. Another name is “loopholes,” and there are so many that listing them consumed 74 pages in the governor’s last budget book. They carry a big price tag – roughly $26 billion this year, more than the state’s General Fund budget – that translates into real savings for many residents and businesses.

…(T)he idea of repealing tax breaks to free up additional money, to provide at least deeper reductions in property taxes, is alive and well. And there are plenty to choose from. (Full Story)

Legislators in Pennsylvania are beginning to realize the fundamental reality that every time they pass special deductions targeted at special interests, they must raise taxes on the rest of the tax base, and that the best tax policy prescription is few deductions and a broad base with low rates.

It’s unfortunate that when a proposal like this to eliminate deductions and produce lower rates at the federal level has been brought forth (ie, Tax Reform Panel), it is considered by most members of Congress to be dead on arrival.

Tax Foundation Chief Economist Patrick Fleenor recently estimated that the federal government could finance its current revenue level with a 9 percent flat income tax if it merely expanded the base by eliminating all deductions and exemptions.

A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.