Posts Tagged pennsylvania

Winners and Losers


One of the many quirks of our political system is that each year there are winners and losers among politicians whose names are not actually on the ballot.  This year is no exception.  Neither Governor Tom Wolf nor State Senator Scott Wagner was up for election this year, but results of the balloting sent their career paths in opposite directions.

Governor Wolf has had a tough first two years in office dealing with a Republican-controlled legislature. His efforts to dramatically expand government spending, and to implement the historic tax hikes needed to pay for that agenda resulted in the longest budget stalemate in state history.  Legislative Republicans won.

Tuesday voters rewarded the GOP with even larger legislative majorities. Democrats in the state senate are now on life support.  Two Democratic incumbents were defeated by challengers; a third Democrat seat went Republican after the incumbent gave up several months ago and resigned from the ballot.  Combined, the three seats give Republicans a 34-16 edge and something rarely if ever seen in state government: a veto proof majority.

Meanwhile, across the rotunda in the House of Representatives Republicans saw their already historically high majority expand by three seats as four incumbent Democrats and one incumbent Republican lost.  The Republican pick-ups came in southwestern Pennsylvania which has been trending toward the GOP for several election cycles.  In fact, the most endangered species in Penn’s Woods might well be the non-urban legislative Democrat, with only a handful of Democratic lawmakers representing districts outside of the state’s urban cores.

All of this matters because next year’s state budget battle is shaping up to be even tougher than the first.  Republicans caved into Governor Wolf’s spending demands this year, but failed to fully fund the budget.  That coupled with revenue sources that either never materialized or have failed to meet projections presages a major fiscal fight next year.

Not only have Republicans added to their numbers, but this year’s legislative elections moved both chambers further to the Right.  Moderate state senators like Cumberland County’s Pat Vance and Lancaster’s Lloyd Smucker have been replaced by far more conservative legislators.  The continued drift of the House GOP caucus from moderate southeastern dominance to conservative central and western Pennsylvania influence means tougher sailing for those wanting to raise either taxes or spending.

Governor Wolf also saw his agenda rejected in another race; that the battle for Pennsylvania’s U.S. Senate seat.  The Democratic nominee, Katie McGinty, was Governor Wolf’s first chief of staff and architect of the tax and spend plan that triggered the epic budget battle.  Incumbent U.S. Senator Pat Toomey made hay of that effectively painting McGinty as out of touch with the financial needs of average Pennsylvanians. He won, she lost.

How then do the fortunes of one state senator rise on all of this? Senator Scott Wagner was an establishment pariah when he ran for an open seat in York County in 2014.  Shunned by his own party Wagner accomplished an historic first in Pennsylvania: He won a special election on a write-in defeating both party nominees.

The upstart senator has quickly gained clout and was tapped by his colleagues to lead the Senate Republican Campaign Committee.  The SRCC as it is known is tasked with recruiting, funding and electing Republicans to the state senate.  After playing a major role in helping to win several seats two years ago, Wagner effectively recruited candidates like Senator-elect John DiSanto of Dauphin County who upended Democratic incumbents last week.  Much of the credit for the senate’s now veto-proof majority goes to Wagner.

This is important because Scott Wagner has made no secret of his desire to run for governor in 2018 and is widely expected to announce his candidacy within weeks.  Having built a strong senate majority gives him a leg up both on the Republican nomination and on a grassroots organization for the battle against Tom Wolf who is expected to seek re-election.

Thus the 2016 election has set the stage for the beginning of the next big electoral battle in Pennsylvania. Political fortunes have risen and fallen. And the never ending cycle of campaigns has already begun anew offering no respite for weary voters.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

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Grow Private Sector, Not Government


 

Tax policy received scant attention in the presidential debates, but when it did both candidates displayed a serious lack of understanding regarding at least one critical component of the tax code: carried interest. Although arcane in nature and unheard of by most, carried interest is a tax rule that fosters capital formation, encourages investment and ultimately leads to job creation.

Simply put, carried interest is a type of capital gain.  Homeowners are familiar with the term ‘capital gain’ which in that circumstance refers to the increase in value of your home over time as you make improvements or rising market prices increase its sale price.  If you sell your principle residence and make more than $500,000 in profit as a married couple, you must pay a capital gains tax.  You pay the capital gains tax rate, not the ordinary income tax rate, on the transaction because you have already paid taxes on the income used to purchase the house.

Likewise carried interest is a long-term capital gain that is earned by an investment partnership.  In this case the asset is not a house, but an investment portfolio that the partnership established and grew over time. When sold, the portfolio manager pays a lower capital gains tax rate on the fund’s profit, not the higher ordinary income tax rate.

The presidential candidates have, unfortunately, decided to portray carried interest capital gains as a loophole granted to special interests.  Both candidates want to raise this capital gains rate claiming it gives investment fund managers an unfair tax break.  Fairness, however, is not what such an increase would achieve. Rather it would amount to double taxation.

The negative effects would be much worse than over-taxing a sub-set of taxpayers.  The partnerships that are formed when an investor joins with a fund manager results in a structure that fosters informed investments that grow over time.  This growth generates profits.  When the profits are re-invested that is called capital.  Such capital is invested in businesses so that they can grow, expand and create jobs.

Carried interest capital gain rules play a critical role in allowing capital to form.  If you raise the carried interest capital gain tax rate, the government will take more in taxes–dramatically decreasing the amount of capital available for investment in the economy.

A significant portion of that capital available for investment is invested right here in Pennsylvania.  According to the American Investment Council, private equity firms invested an estimated $24.49 billion in Pennsylvania-based companies in 2015.  There are 143 private equity firms headquartered in Pennsylvania.  These companies support more than 185,103 workers at facilities both in Pennsylvania and in other states.

In other words, carried interest capital gains is not a tax device aimed at making Wall Street fund managers richer. Rather, it is appropriate taxation that makes more capital available for investment in the companies that are creating much needed new jobs for Pennsylvanians and elsewhere.

It is common in an election year for candidates to propose new government spending programs in an effort to win votes.  They then go looking for ways to pay for that higher spending. “Reforming” the nation’s complex tax structure is often an effective target.

But, changes can have unintended consequences.  Raising the current 23.8% carried interest rate to 33% as proposed by Donald Trump or almost 50% as suggested by Hillary Clinton would result in only a modest increase in tax revenue flowing into the federal treasury.  And we all know that any move to raise this rate would likely be coupled with other tax hikes on working families and small businesses.

Even if you set aside the unfairness of double taxing investors, raising the carried interest tax rate or eliminating that category of capital gain entirely would have the detrimental effect of reducing capital formation.  That means dramatically fewer dollars available for companies to grow and create new jobs.  Carried interest is not a tax break for the wealthy; rather it is a way for investors to put their earnings to work creating the new jobs needed as the nation struggles to recover from the Great Recession.

Lowman S. Henry is Chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc. and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org

Permission to reprint is granted provided author and affiliation are cited.

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This Week on American Radio Journal: Sally Pipes Talks ACA Death Spiral on American Radio Journal


Radio Program Schedule for the week of November 5, 2016 – November 11, 2016

This week on Lincoln Radio Journal:

  • David Taylor from the Pennsylvania Manufacturers Association and Matthew Brouillette of the Commonwealth Partners Chamber of Entrepreneurs have a Capitol Watch look at what did and did not get done before the end of the General Assembly session
    Lowman Henry has a Town Hall Commentary on why elements of the tax code foster job creation

This week on American Radio Journal:

  • Lowman Henry talks with Sally Pipes of the Pacific Research Institute about premium hikes under the Affordable Care Act
  • Andy Roth from the Club for Growth has the Real Story on unfinished business awaiting the return of congress
  • Eric Boehm of Reason magazine takes a look at early childhood education programs
  • Col. Frank Ryan, USMC (Ret.) has an American Radio Journal commentary on the Veterans Administration

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: Chris Nicholas Wraps Up Election 2016


Radio Program Schedule for the week of October 29, 2016 – November 4, 2016

This week on Lincoln Radio Journal:

  • Lowman Henry gets an overview of races on the upcoming General Election ballot from Chris Nicholas of Eagle Consulting
  • Joe Geiger from the First Nonprofit Foundation has Sharon Goldwyn from the American Committee for the Shaare Zedek Medical Center in the Community Benefit Spotlight
  • Beth Anne Mumford of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on skyrocketing rates under Obamacare

This week on American Radio Journal:

  • Lowman Henry talks with Brian Knight from the Mercatus Center at George Mason University about the Supreme Court ruling the Consumer Financial Protection Bureau unconstitutional
  • Andy Roth of the Club for Growth has the Real Story on challenges facing Paul Ryan’s re-election as Speaker of the House
  • Eric Boehm of Reason Magazine gets details of a California ballot referendum to legalize the recreational use of marijuana from Lynn Lyman of the Drug Policy Alliance
  • Dr. Paul Kengor from the Center for Vision & Values at Grove City College has an American Radio Journal commentary on the passing of sixties era radical Tom Hayden

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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This Week on Lincoln Radio Journal: Democratic Attorney General Nominee Josh Shapiro


Radio Program Schedule for the week of October 22, 2016 – October 28, 2016

This week on Lincoln Radio Journal:

  • Matt Brouillette of Commonwealth Partners Chamber of Entrepreneurs and Kevin Shivers from the National Federation of Independent Business have a Capitol Watch round table discussion with Josh Shapiro, the Democratic nominee for Pennsylvania Attorney General
  •  Lowman Henry has a Town Hall Commentary on Pennsylvania’s worsening business climate

This week on American Radio Journal:

  • Lowman Henry talks with Jonathan Williams of the American Legislative Exchange Council (ALEC) about the nation’s growing problem with unfunded public employee pensions
  • Andy Roth of the Club for Growth has the Real Story on dimming chances for the GOP to retain control of the U.S. Senate
  • Eric Boehm of Reason Magazine talks with Lee McGrath from the Institute for Justice about proposed new licensing requirements in New Jersey for swimming pool installers
  • Colin Hanna of Let Freedom Ring, USA has an American Radio Journal commentary on the final weeks of the 2016 Presidential campaign

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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Leave Us Alone


It was a simple, yet revealing summary of the problems plaguing Pennsylvania’s businesses.  “Please stop trying to ‘fix’ it,” the business owner begged. “Leave us alone.”  That plaintive plea came as three new studies show our state’s economy is sagging under the weight of new regulations, higher taxes, and unsustainable government spending.

Recovery from the Great Recession of 2008-2009 has been one of the slowest in history.  But, some states have bounced back faster and farther than others.  Pennsylvania is not one of those states.  The Fall 2016 Keystone Business Climate Survey conducted by the Lincoln Institute of Public Opinion Research found half of the business owners/chief executive officers surveyed saying the state’s business climate has gotten worse over the past six months, and only five percent reporting improving business conditions.

Like other states the people who actually run businesses reported a dramatic deterioration in economic conditions in Pennsylvania during the Great Recession. Optimism returned briefly during the Corbett Administration, but tanked less than three months into Governor Tom Wolf’s tenure.

Governor Wolf began his administration pushing for historic increases in both state spending and in taxes.  The Republican-controlled legislature successfully derailed that effort last year, but then caved into $1.4 billion in higher spending this year – earning the disapproval of 86% of the owners/CEOs.  All of this creates a climate of uncertainty leaving one owner to comment: “We expect another shoe to drop making it difficult to operate in Pennsylvania.”

The biggest shoe that hasn’t dropped is who will pay to bail out Pennsylvania’s massively underfunded public pension system.  Business owners fear a significant portion of that burden will fall upon them.  And the problem is, to use a currently popular word, huge.

The American Legislative Exchange Council (ALEC) recently released a study of state pension systems entitled Unaccountable and Unaffordable.  It pegged Pennsylvania’s unfunded pension liability at nearly $212 billion dollars.  The commonwealth has amassed the 44th largest unfunded pension liability among the fifty states.

Compounding the problem is Pennsylvania has little room in which to maneuver in finding new revenue streams (taxes) to fund the public pension system.  The Tax Foundation’s State Business and Tax Climate Index found we have the 24th highest state tax burden in the nation.  We already have the most damaging taxes on the books: the Personal Net Income tax, Corporate Net Income tax, and a broad-based state sales tax.  Already suffering from a poor tax climate, any move to expand, increase or create new taxes would further erode our competitiveness.

These factors weigh heavily on the minds of business owners/CEO as they consider locating or expanding in Pennsylvania.  Forty percent said Governor Wolf’s proposed tax hikes have caused them to not expand their businesses.  That factor was second only to the explosion of new federal regulations in impeding business growth.

Why should non-business owners care about all of this?  Business relocation into Pennsylvania and the expansion of existing businesses will result in the creation of new jobs.  Penn’s Woods has lagged the national average in job creation in large measure due to state taxes and regulations.  The 2016 Keystone Business Climate Survey found 21% of the responding businesses reduced their employee compliment over the past six months while only 11% added employees.

Thus Pennsylvania continues on a downward spiral.  And there is little optimism among those on the front lines of business activity in the state for improvement at any point in the near future.  Uncertainty is Kryptonite to business development.  At the state level uncertainty abounds.  Governor Wolf continues to press for increased spending and higher taxes at a time when the commonwealth already faces a structural budget deficit.  The recent record of legislative Republicans has shaken confidence in their ability to either deal with cost drivers like the pension crisis or to successfully oppose future tax hikes.

The bottom line is Pennsylvania’s business climate will not improve, and significant job creation resume, until and unless state government gets spending under control, addresses the looming pension crisis, cuts onerous regulations and provides some measure of tax relief to businesses ready to expand but which are being held back by the heavy hand of government.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

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This Week on Lincoln Radio Journal: State Treasurer Nominee Joe Torsella


Radio Program Schedule for the week of October 15, 2016 – October 21, 2016

This week on Lincoln Radio Journal:

  • Lowman Henry has a Newsmaker interview with Joe Torsella the Democratic nominee for Pennsylvania State Treasurer
  •  Eric Montarti and Frank Gamrat have an Allegheny Institute Report on a state Supreme Court ruling over casino revenue to host municipalities
  • Beth Anne Mumford of Americans for Prosperity-PA has a Lincoln Radio Journal commentary on Pennsylvania’s noncompetitive tax structure

This week on American Radio Journal:

  • Lowman Henry talks with Hans von Spakovsky of the Heritage Foundation about how states can protect their election systems
  • Andy Roth of the Club for Growth has the Real Story on how the GOP civil war will affect congressional candidates
  • Eric Boehm of Reason magazine discusses road blocks facing Uber and Lyft with Michael Farren of the Mercatus Center at George Mason University
  • Col. Frank Ryan, USMC (Ret.) has an American Radio Journal commentary on coping with information overload

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

http://www.lincolnradiojournal.com

http://www.americanradiojournal.com

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