To start the second half of the Super Bowl, with the Colts comfortably ahead of the Saints, Coach Sean Payton called for an onside kick. For those of you who don’t follow football, let me tell you: it’s a remarkably gutsy move. It’s a way to get the ball back early, provided that things go the way that you hope they do. If they don’t, you lose the ball and the opposing team has an advantage. It worked for the Saints. Not only did they get the ball back, the entire momentum of the game shifted in their favor.
Pennsylvania Governor Edward Rendell is about to launch his own version of the onside kick: a gutsy move to raise $2.3 billion in two years by changing the way that Pennsylvanians are taxed. If he’s successful, the Commonwealth may manage to avoid the “financial tsunami” expected by the loss of current revenue. If he’s not, chances are that the nation’s 6th most populous state will sink even further into debt.
Here’s what Rendell is suggesting: cut the sales tax rate to 4% from the current rate of 6%. That’s meant to make taxpayers feel like they’re getting a break… Only he’ll make up the difference by expanding the sales tax base adding items like coal, candy and professional services such as legal services, accounting and engineering. As a member of the bar in Pennsylvania, let me tell you, it’s not a popular idea.
Since the Commonwealth is experiencing a boon in the natural gas industry, Rendell is also suggesting a levy on natural-gas drilling. The new tax on natural gas would be 5% of value plus 4.7 cents per 1,000 cubic feet produced. Republicans in the Senate have signaled that they will oppose the tax.
Not surprisingly, Rendell also wants to close a corporate tax loophole which relies on the creation of Delaware subsidiaries to avoid taxation in Pennsylvania. Inside Pennsylvania, he proposes shaving the corporate net income tax rate from 9.99% to 8.9%. Clearly, the move is meant to make it more appealing to do business inside the Commonwealth and less advantageous to move your business out.
As budget shortfalls continue to pile up in states across the country, expect more governors to consider “alternative” taxation. As for Rendell, who considers himself quite the football aficionado? He’ll probably find himself playing defense in the days and weeks to come.
