Business Owner for Higher Taxes? Had to be One Somewhere

In a recent op-ed piece a business owner made an incredible statement. "My business would be hurt far more by allowing the tax cut for America’s most fortunate to continue and instead slashing budgets for things like public education, research and infrastructure to pay for them."

Nice rhetoric but completely wrong on every point. Federal income taxes are not even close to the most important component of education spending. Public education is funded primarily by state and local taxes. Infrastructure, especially roads and bridges, are funded mostly by special taxes designed to collect money from people and businesses that use them. And the notion that Federal budgets have been slashed totally ignores the fact that Federal spending is up a trillion dollars since 2007. Which budgets have been slashed? Federal spending as a percent of GDP is at its highest level in history save for WWII. The claim that programs are being starved is nothing if not hilarious.

The writer is obviously concerned about Federal tax revenue not keeping up with the nation’s spending binge. But the primary reason for depressed tax revenue is the weak economy that has not responded to the bulge in Federal spending as we were promised it would by the President and his people. Moreover, the policies of regulation and the threats of higher taxes coming out of DC are depressing private sector investment and growth. It is important to remember that the USA has one of, if not the, highest corporate tax rates on the planet. And the magnitude of the final real costs of Obamacare is still unknown both in terms of direct expense for employees for health care costs and for compliance.

The notion held in some quarters that allowing the tax cuts to be eliminated for those making over $250,000 is going to solve the nation’s fiscal crisis is irrational. That will not raise nearly enough money in a depressed economy and will have a chilling effect on business growth. The tax raisers are forever and always disappointed when higher rates fail to produce more revenue. But they never learn.

Getting more people on private sector payrolls is the only sensible answer to our fiscal woes, Federal or local. Current and prospective policies in DC are pushing in exactly the opposite direction. It is too bad and very sad that some folks can be successful in the private free enterprise system and still have so little understanding of what makes the system great or have so little respect for keeping free enterprise free and as unfettered as possible. A look at France, Greece or Spain might help them but the writer of the op-ed in question is too busy linking things together fallaciously to take a look elsewhere to see what happens in the world he thinks would be better than ours.

Finally, the typical ignorant comment about the need to spend ever more money on public education in the country fails abominably to see what is happening in public education in Chicago, Philadelphia and Pittsburgh and other cities. Seven percent of Westinghouse 11th graders are proficient in math. The majority of Chicago students are unable to function at grade level. Lack of spending? Over $20,000 per pupil in Pittsburgh and the nation’s second highest paid teachers in Chicago. How many more tax dollars must be thrown at these failed school systems to satisfy the business man who thinks we are under taxed?

Acquiring some actual knowledge about the world and how it works could go a long way to correcting the thinking of the business owner.

Strike Two!

As we wrote in a blog earlier this year, the Neshaminy School District in southeastern Pennsylvania had a teacher strike, the first in the 2011-12 school year. As of Monday, teachers in that District walked out on the picket lines again, (first time was in January) and they are allowed to stay out until next Friday the 15th so as to leave enough time to complete 180 days before the end of June per state law.

The board and the teachers’ union are still working on a contract that expired in June of 2008. It is important to look at the "three e’s" of the District, all obtained through the most recent CAFR, that show what has happened in recent years.

Enrollment-it has fallen since 2002, about 11%, and stands at just over 8,500.

Employment-it has also fallen since 2002, but at a slower pace than enrollment (7%).

Expenditures-are up 33% since 2002.

That means per pupil expenditures in the District have grown significantly in the last decade, but as with many negotiations the issues of pensions and health benefits are center stage. Taxpayers don’t want to pony up more for benefits in a district where the median salary is over $89,000, even though union officials have suggested a tax increase is one way to go toward ending the impasse.

Council Lady Displays Woeful Ignorance about PAT

The following paragraph is taken verbatim from a sitting member of Pittsburgh’s City Council and illustrates perfectly how the City got into financially distressed status and why it is likely to remain there if her views continue to guide policy decisions. Writing in the Post Gazette editorial pages Councilwoman Rudiak says, "We live in an extraordinarily wealthy country that can afford the vital, world-class public services that have provided the foundation for our economic prosperity. Unfortunately, our priorities have shifted. Many of our elected officials have decided that maintaining public services is not important and that our nation’s wealth is best kept in a few hands."

This paragraph is part of an editorial in which the Councilwoman bemoans the fact that the state is not rushing to pour more money into Allegheny County’s outrageously expensive and effectively bankrupt public transit system. According to the Councilwoman it is mere selfishness on the part of Harrisburg officials by which she undoubtedly means the Governor without saying as much.

Ms. Rudiak either has no conception of the extraordinary burden imposed by legacy costs at the Port Authority or the extremely high wage rates and benefits paid by the Authority or chooses to ignore them while slamming elected officials who have the responsibility of seeing that public dollars are used wisely.

But most ridiculous of all is the argument that world class public services are the foundation of our prosperity. The foundation of prosperity is a free enterprise system that allows free people to start businesses and use their talents, hard work and creativity to generate income and wealth. The rule of law and protection of individual and property rights are the foundation of prosperity; infrastructure and adequate public services are facilitators. As we have plainly witnessed in the Soviet Union, a good mass transit system and huge expenditures on "public services" did not create prosperity.

And to argue that the wealthy are being allowed to keep too much of their income and wealth is simply devoid of any factual basis. It is a known fact that the top 10 percent of income earners pay the lion’s share of all Federal income taxes. Ms.Rudiak quotes a study claiming that high income earners in Pennsylvania pay a much lower share of their income in state and local taxes than do middle income earners, 4 percent for over $428,000 as compared to 9 percent for $35,000 to $56,000. But the proviso is that the 4 percent is after Federal offsets, whatever that means.

It would not be surprising to learn that very high income earners pay a lower share of income in sales taxes or property taxes but not low enough to make their state and local share only 4 percent. In absolute terms those taxpayers are paying a large amount of state and local taxes. The state income tax is a flat 3 percent and there is no way their combined property and sales taxes account for only one percent of their income. For that to happen they would have to spend most of consumption dollars out of state and own very little taxable real estate.

One of the crises facing Pittsburgh, Pennsylvania as well as many states and cities across the nation is the financial burden of pension costs of public employees whose benefits are far greater than most private sector workers. With a greater and greater share of tax dollars going to pay for legacy costs, there will be fewer dollars to pay workers to perform for public services. Unless, of course, taxes are raised which will in turn stifle the income producing private sector that is needed to support all the public spending.

Ms Rudiak-and the other elected officials who believe that higher taxes are the answer to the economy’s problems-is a main reason the country and many states are in the shape they are in financially. How easy it is to believe that taxes can be raised willy-nilly to fund ever less efficient government and its rising costs without serious consequences to the city, state and nation. For these folks, there is never enough government or publicly provided services.

Revenge of the Three Rs!!!

Facing many challenges at the same time, from "uncertain federal and state funding" to "declining school enrollment" to "increasing costs", the most telling piece of data from an October 20th budget presentation on the Pittsburgh Public Schools is the one that states "we can get greater efficiencies because others are delivery services for less". Surely the presentation meant delivering services for less; either the grammar teacher with the ever-present red pen must not have been nearby to correct the budget department or the number-crunchers did not re-read their statement.

The arithmetic, however, shows what plagues the City schools: based on the 2009-10 average daily membership, the cost per pupil in the Pittsburgh Public Schools was $21,027. Seven other urban districts in Pennsylvania, from Philadelphia with 207,000 students to neighboring Wilkinsburg with 1,560, don’t even come close to that level of spending. The range covers $10,414 in Wilkes-Barre to $18,619 in Wilkinsburg. On average, the districts (excluding Pittsburgh) spent $14,130 per pupil: roughly 50% less than Pittsburgh. It should not come as a surprise to anyone inside or outside the District that per pupil costs are far out of line-we have been pointing it out for years.

Surely the lackluster performance results could be achieved for a lot less per pupil. Districts spending much less have official state overseers at this point or had them previously. Now another round of school closures/realignments is slated for PPS and there could be more layoffs. But the per student cost continues to rise. To say that greater efficiencies could be found is an understatement.

An Updated Look at Municipal Spending in Allegheny County

Local government is perhaps the most important to its residents, yet many are unaware of how much their municipality collects in revenues and spends on services.  In 2010 we started the first of a series that takes a look at the per capita spending and revenue levels of Allegheny County’s municipalities.  Last year we looked at the 2008 Municipal Annual Audit and Financial Reports to compare the per capita values and noted the highs and lows.  This year we look at the 2009 Reports, the most recent available, to provide an update.  This year’s report covers 123 of the 129 smaller municipalities that comprise Allegheny County.  We also update the population data from the 2009 estimates to the 2010 Census count[1]



Continue reading

Cutting Through the Fog of the Debt Ceiling Debate

Why can’t they just get along down in DC and solve this debt ceiling problem? The mournful cry of the folks who do not understand the watershed moment we have come to.

Democrats and the President want to raise taxes and revenues in order to protect the ruinous levels of current and future spending the government has promised or undertaken in the past couple of years. Republicans want to hold the line on revenues and even lower tax rates.

Who has the better argument? Democrats hold the position that it is necessary to make sure the promises made on Social Security, Medicare, Medicaid, veterans benefits, as well as education and other programs will be kept. In order to do that the President insists that tax revenues must be raised above current projections.

Here is the crux of the matter. In order to ensure the long run viability of these programs one thing is absolutely essential: We must have an economy that is growing sufficiently to throw off enough revenue to finance the promised benefits, now and in the future. The burdening of the economy with new regulations, the anti-business attitude of the administration and the rise in taxes that will occur because of the ending of the Bush tax cuts and the money needed for Obamacare are already being factored in by businesses. Little wonder job creation is so anemic. Talk of even more tax hikes as if they will automatically increase revenue is fatuous thinking at best. People are not machines; take away incentives or punish success and the economy stagnates. How long will it take to learn that lesson?

If Democrats are really concerned about the viability of the entitlement programs, they should be jumping at the Republican proposals to get the economy on a stronger growth path. Since they continue to play the class warfare game and side with strong arm union tactics, one must conclude they are not really concerned about the old and the infirm. Rather, they are concerned about remaking the USA into a socialist utopia. It would be nice if they could point to one.

New PSEA Head Wants to Improve PA Education—Really?

Quoted in Monday’s Tribune Review, the new president of the Pennsylvania State Education Association-the teachers’ union-says he wants to work with the Governor and other state officials to make public schools the schools of choice. He also maintains that our schools are doing really well although there are still problems. Naturally, these are problems he believes could be solved with more resources, i.e., taxpayer dollars.

How sad that the teachers’ union has appropriated the title "education association" for itself rather calling themselves what they are-a union for teachers.

The new president says assessment test scores are improving in every grade. But that claim is dubious. SAT scores have not improved and that is the litmus test of how schools are doing. Moreover, as the Allegheny Institute has documented in its Policy Brief series, the big improvements in the 8th grade scores are questionable. Then too, 11th grade reading scores have not improved and the math scores remain dreadfully low. And, if we look beyond the reading and math tests, where so much time is spent preparing students for the tests, to the performance on science, we find abysmal results.

The teachers’ union president wants to make public schools the schools of choice which means he wants to protect public school employee jobs. If he truly cared about quality education for Pennsylvania’s students, he would be focused on helping create alternatives to the public school monopoly. But as is sadly the case for union leaders, he cannot square the circle. The union is about promoting the union members’ interests; the interest of students will always be secondary-if not even less important. The union’s interests include electing legislators who will serve them first and foremost. Students and taxpayers always receive short shrift from these elected officials. If they were honest and opened their eyes they would see the damage resulting from teacher strikes and the law disallowing layoffs for economic reasons. These union-coddling statutes represent massive assaults on the marketplace and unconscionable degradation of taxpayers. And so it goes in Pennsylvania.

Municipal Spending in Allegheny County: The High and the Low

With municipalities across Allegheny County setting their budgets for the upcoming year, several are patting themselves on the back for not raising taxes.  That is a good thing but it would be even better if taxes could be reduced, especially in communities where per resident spending is much higher than the municipality average in the County.  To see which communities are high spenders and which are comparatively low spenders we obtained data from each municipality’s Municipal Annual Audit and Financial Report and use that to compare per capita spending across the County[1].  The most recent municipal data available is for 2008 and a full list of the municipal spending categories can be viewed on our website.  Population data is taken from the Census Bureau’s 2009 estimates. 



Continue reading

Goodbye, Mr. Roosevelt–With Apologies to Mr. Chips

The Pittsburgh school superintendent will be leaving at year’s end with almost four years remaining on his contract. He is headed for new challenges and opportunities as president of a defunct college.

Perhaps the challenges still unmet in Pittsburgh have proved too daunting. After years of effort and massive spending to improve the schools and student performance, high school academic achievement-as measured by SAT score and PSSA results-point to an unmistakable conclusion: there has been no progress in the education of 11th graders. And as anyone who has thought about it knows, we don’t spend over a quarter of a million dollars per student for 13 years so they can enter the world unprepared. It does not matter if they are good 5th grade students. The ultimate goal is not good 6th grade students. Important, but not the final objective.

Could it be that Mr. Roosevelt, upon realizing that the public school model in Pittsburgh would never accept the changes necessary to fix the high school problem, despaired of stopping the outflow of students and improving student test scores? Good time to jump at an opportunity such as going to resurrect a failed college. Let’s hope the college’s finances are able to cash his paychecks.

Drilling Revenue Could Go Up in Smoke, and Fast

Tapping in on the Marcellus Shale bonanza is the Mon Valley community of McKeesport, which just announced a deal to allow drilling on 27 acres near a park (which is designated as a regional park and qualifies for funding from the Regional Asset District, $10 million from 1995-2010) in return for a $10k annual fee and 12.5% in royalties.

One member of Council said that "It’s another revenue stream for the city…it can really boost our budget in portions we’ve never seen before."

What are the unseen spending areas that the Councilman refers to? The 2008 audited data that we collected for our most recent report shows that McKeesport spent $974 per capita-the countywide municipal average was $629-and had higher per capita spending levels on general government, public safety, sanitation, recreation, debt service, and already carries three times the debt than the average municipality. The only area where McKeesport spent less than average was on highways.

After spending on police, parks, refuse, administration, and debt-and at a higher rate than the typical town in the County-is there really any other service area the municipality needs to engage in?