Pennsylvania Budget Follow-Up: The Elimination of the Death Tax on Small Businesses

         

           As part of the Commonwealth’s fiscal year 2013 budget approved June 30, Pennsylvania has eliminated inheritance taxes on certain small businesses. 

The budget was approved by the General Assembly, in which Republicans hold a majority, and signed into law by Governor Tom Corbett, also a Republican.  The measure to eliminate the death tax for small businesses attracted strong bipartisan support.

Under Pennsylvania’s new inheritance tax law, to be generally qualified as exempt from the inheritance tax, a small business must have less than a $5 million net worth and employ fewer than 50 full-time employees and the business must be transferred to a spouse, lineal or collateral descendant. 

As I had noted last year, Pennsylvania had already eliminated them on family farms.  See my post from August of 2012, Governor Corbett Abolishes Pennsylvania’s Death Tax for Family Farmers, http://williamcinfici.blogspot.com/2012/08/governor-corbett-abolishes.html.  In that post, I urged that the tax be eliminated on businesses, especially small businesses that require a significant amount of land to operate.  As with family farms, many owners had to sell off all or parts of their businesses in order to pay the inheritance tax.  Pennsylvania’s inheritance tax ranges from 4.5% to 15%, depending on the relationship of the heir to the decedent. 

The Keystone State’s death tax is especially burdensome because all inherited assets are subject to the tax, whereas the United States and most other States in the Union that impose an inheritance tax allow a significant exemption.  A typical example in other States is to exempt the first $100,000 dollars of assets.

The death tax was supposed to be phased out completely for all Pennsylvanians and was reduced for lineal descendants from 6% to the lowest rate many years ago, but no further action had been taken until these two measures to ease the burden for family enterprises.

           I praise the General Assembly and Governor for enacting these tax reforms.  These tax cuts should boost the economy, make Pennsylvania more competitive in attracting and maintaining businesses, and even reduce suburban sprawl.  I call upon them to phase out the death tax completely for all Pennsylvanians.

Obama Denies the Obvious in Egypt

The deposing of Egyptian President Muhammad Morsi by Egypt’s army was obviously a military coup d’etat, notwithstanding the fact that it was demanded by a broad-based opposition and that it was popular.  United States President Barack Obama has declared, however, that the removal of the Muslim Brotherhood-led government from power was not a military coup.  A finding that it had been would have barred the continuation of American military aid to Egypt.

There is nothing wrong with a coup that removes a democratically-elected government that had usurped its power, as long as the coup leaders restore civilian, representative government that protects liberty as soon as possible.  The point is that it was wrong of liberals to criticize former President George W. Bush for not opposing a coup that temporarily removed Hugo Chavez from power in Venezuela and for President Bill Clinton to restore Jean-Bertrand Aristide to power in Haiti, both of whom were democratically-elected presidents who gradually became dictators.  Liberals were also wrong to oppose the popular removal by the legislative and judicial branches of the Honduran government of the country’s president, who was a Chavez ally who had attempted to extend his rule, in violation of the constitution of Honduras, just as the Left was wrong to oppose the popular 1973 coup supported by most Chilean institutions that removed the Marxist Salvador Allende from power in Chile.  In contrast to Egypt, the Obama Administration denounced the Honduran coup and sanctioned and ostracized the government that restored representative republican rule.

As I have posted in regard to all of these examples, liberals must learn that the manner of choosing a government, or even the type of government, is not as important as the manner in which it rules, specifically, whether it respects civil rights.  They would profit from studying especially the examples of two infamous democratically-elected regimes, namely Napoleon Bonaparte’s French Empire and Nazi Germany. 

The Obama Administration should be honest and consistent and call the Egyptian military coup what it is and instead ask Congress for the power to repeal the law prohibiting military aid to regimes that come to power by a military putsch, or at least the power to waive such a rule under certain circumstances, such as when a military coup restores liberty.  Even better, it ought to applaud the Egyptians for removing an authoritarian Islamist government that had disappointed the people it had oppressed, while encouraging freedom for all.

Update on the Promotion of Dollar Coins

A new study by the Council for Citizens Against Government Waste has determined that dollar coins would save $13.8 billion by replacing paper currency, nearly triple the figure suggested by earlier studies, according to CNBC.  Paper currency is cheaper to produce, but far less long-lasting than coins.

CNBC also reports that Senator John McCain (R-AZ) has introduced bipartisan-supported legislation to phase out the one-dollar Federal Reserve note (the dollar bill).   Several foreign states have eliminated their single-denomination paper notes, thereby encouraging the use of coins and saving money.  Advocates of dollar coins have promoted the phase-out of the dollar bill to encourage the use of dollar coins and to achieve the projected savings.

See my earlier posts on this subject: Dollar Coins Are Not a Waste of Money, from September of 2011, http://williamcinfici.blogspot.com/2011/09/dollar-coins-are-not-waste-of-money.html; Follow-Up: Dollar Coins Are Not a Waste of Money, from October of 2011, http://williamcinfici.blogspot.com/2011/10/follow-up-dollar-coins-are-not-waste-of.html; Use Dollar Coins and $2 Bills, from the same month, http://williamcinfici.blogspot.com/2011/10/use-dollar-coins-and-2-bills.html; and The Obama Administration is Penny-Wise and Pound Foolish about Dollar Coins, from December of 2011, http://williamcinfici.blogspot.com/2011/12/obama-administration-is-pennywise-and.html. 

See also the website of the Dollar Coin Alliance: http://www.dollarcoinalliance.org/.

Pennsylvania House Bill 76 and Senate Bill 76 Would Eliminate School Real Estate Taxes

Pennsylvanians are being crushed by real estate taxes, especially school real estate taxes, which tend to increase the most.  The burden of funding Pennsylvania’s schools is falling disproportionately on homeowners.

Real estate taxes are particularly burdensome on senior citizens and businesses in Pennsylvania.  Now that estate taxes (“the death tax”) have been eliminated on family farms in the Commonwealth, real estate taxes remain a major contributing factor in the break-up of family farms across Pennsylvania.  They also discourage younger people from purchasing homes. 

Real estate taxes have contributed to a decline in Pennsylvanians’ net worth by reducing the value of real estate because they increase the cost of ownership.  Real estate values decline especially after homes are sheriff sold for failure to pay taxes, thereby resulting in lower assessments for those and neighboring properties, which thereby produce less real estate tax revenue, which, in turn, increases pressure to raise real estate taxes.  Eventually, a point of diminishing return is reached.  This vicious cycle is especially noticeable in urban districts.  Moreover, real estate taxes penalize improvements to real estate and reward dilapidation, thereby encouraging blight.

The power of school boards to increase real estate taxes in their districts has allowed school spending to increase faster than the rate of inflation and population increase. 

            Identical bipartisan bills in both chambers of the Pennsylvania General Assembly, House Bill 76 and Senate Bill 76, would eliminate school real estate taxes.  Both bills are gathering more and more legislative support.  The bills, which are the product of efforts by the Pennsylvania Coalition of Taxpayer Associations, are sponsored by Rep. Jim Cox (R-Berks County) and Senators David Argall (R-Schuylkill County), Mike Folmer (R-Lebanon Count), Judy Schwank (D-Berks County) and John Yudichak (D-Luzerne County).  Argall and Folmer’s districts also include parts of Berks, among other counties. 

            The bills would phase out school real estate taxes in every Pennsylvania school district over two years by replacing them with increases in the state sales tax (from 6 to 7%), as well as by broadening the list of taxable items, and personal income taxes (from 3.07 to $.34%) for those earning over $35,000.  This tax-shift plan would be revenue-neutral, as each school district would continue to receive its current allotment, adjusted for inflation.  Those few districts without debt would immediately see an immediate elimination of school real estate taxes, while every other district would continue to service its debt obligation; real estate taxes would continued to be levied by these districts, but only the amount necessary to service the debt, until the debts are fully retired.  School districts could raise income taxes for major projects, such as school construction, only by referendum.  Gambling revenue from slot machines would continue to help fund the schools. 

It is important to note Pennsylvania’s state sales tax has been dedicated to funding the schools since its inception.  It is paid not only by Pennsylvanians, but also by visitors from other states, thereby reducing the burden on citizens of the Commonwealth.

            A companion amendment to Pennsylvania’s Constitution would permanently prohibit school real estate taxes, once they are eliminated.  Counties and municipalities would continue to levy real estate taxes, however.  Until they are eliminated, Pennsylvania homeowners will continue essentially to rent their homes from the government and will thus never truly own them. 

            If HB 76 and SB 76 were passed and signed into law by the Governor, Pennsylvania homeowners would save a net of hundreds of dollars a year on average, while realizing a substantial gain in net worth because of the increase in property values.  Businesses would also save money, which would make Pennsylvania a more attractive place to locate, maintain or expand a business.  There would be fewer breakups of family farms and less urban sprawl.  The homebuilding industry would benefit from an increase in demand for homes, because they would be more affordable.  All of these factors would stimulate the economy, thereby generating additional sales and income tax revenue for the schools.  Because they would be receiving a predictable stream of revenue, school districts would be forced to control spending, but would be able to focus more on improving education than on raising funds.  These bills would establish tax fairness by spreading the burden for education more equally to all Pennsylvanians and increase freedom by increasing property rights, as citizens of the Commonwealth would be significantly less vulnerable to losing their homes.

           As a homeowner and school director in an urban school district, I see firsthand the damaging effects of school real estate taxes.  I have repeatedly called publicly for the legislature to enact real estate tax reform, as well as privately urged legislators to do the same.  HB 76 and SB 76 represent the best opportunity ever to eliminate school real estate taxes.  To increase freedom and fairness, as well as to improve the Commonwealth’s economy, I urge the Pennsylvania General Assembly to approve these bills and the Governor to sign them into law.

Pennsylvania Opts out of Medicaid Expansion

          Pennsylvania has effectively exercised its option of not expanding Medicaid, the federal health insurance program for the poor, which is a key part of the federalization of health insurance approved by the liberal Democratic Congress and signed into law by United States President Barack Obama, a Democrat, in 2009.

           When the U.S. Supreme Court ruled on the so-called Affordable Care Act, it declared its requirement that states expand Medicaid, under the threat of losing all of their federal funding for the program, unconstitutional.  The coercion of the States violated their sovereign rights, under the principle of federalism.  Some of the States among the 26 that had sued the federal government have voluntarily opted to expand the program, while several others opted out of Medicaid expansion.

           Pennsylvania Governor Tom Corbett, a Republican, has not officially announced his decision on whether to expand Medicaid, but he had been asking the Obama Administration questions about the nature of the expansion and the expected costs.  Under the federalization of health insurance plan, the federal government would pick up most of the initial costs for the expansion of Medicaid, but the States would bear an increasing burden of billions of dollars over time. The big-government entitlement program is already expensive, riddled with waste, fraud and abuse, burdensome and ineffective. The Governor has asserted that there is no deadline for him to decide to expand the federal welfare program.  The Commonwealth did not appropriate any money in its recently-passed budget for the implementation of Medicaid expansion, thereby effectively opting the Keystone State out of the expansion, at least for now.

           Corbett resisted pressure from welfare advocates to opt into the federal plan to expand Medicaid.  He deserves gratitude from Pennsylvania taxpayers for resisting the pressure.  We conservatives should continue to oppose the expansion of Medicaid and the federalization of health insurance and instead support market-based reforms, the elimination of the prohibition of purchasing insurance across state lines and medical malpractice tort reform.

Pennsylvania Balances Its Budget without Raising Taxes

           The Pennsylvania General Assembly, led by its Republican majority, approved a balanced budget for the Commonwealth – on time and without raising taxes, for the third consecutive year.  The $28 billion was signed into law by Governor Tom Corbett, a Republican.

            Pennsylvania’s fiscal year 2013 budget restarts the long phase-out of the capital stock and franchise tax.  This onerous tax, which has been in the process of being gradually eliminated since the 1990s, is in addition to the state’s corporate income tax, leaving the Keystone State with the highest corporate tax burden in the world, thereby making it difficult to maintain or attract business to Pennsylvania.  The budget also increases spending on education.  Pennsylvania now spends more on education than ever before, despite the end of the Obama stimulus that was allocated for education (the end of which made it appear incorrectly to critics that spending had been cut by Corbett).

           Left undone, among other matters, are three major issues: transportation funding, pension reform and liquor privatization.  These issues are expected to be taken up by the legislature in the fall.  

Italian Economic, Fiscal and Political Developments

           This post is a compendium of significant recent stories reported by ANSA, the Italian news agency.  Other than CNBC, which has been following political and economic developments in Italy because of the European Monetary Union crisis, against which Italy, as the Eurozone’s third largest economy, is a firewall, there has been little reporting in the American media on the subject.

            In economic and fiscal developments, Italy has been removed from “deficit watch” status by the European Union, along with the harsh measures concomitant with such status, as its deficit is projected to drop a tenth of a percent below the 3% of gross domestic product threshold.  The spread between Italian and German bonds continues to be well below 300 basis points.  The grand coalition Government will delay increasing the value-added tax, while it has reached no decision on eliminating and refunding the real estate tax, which was a key demand of the center-right.  The Government is cracking down more on tax cheaters and those who fraudulently receive pensions.  Meanwhile, the government paid tens of billions of euros worth of bills it had owed businesses, which is expected to have an economically stimulative effect.  Italy is enduring its worst recession, characterized especially by unemployment among the youth.  A plan for addressing youth unemployment with a mix of spending and tax incentives was announced by the Government.  The plan also includes more aid for Southern Italy.

            In political developments, the government appointed “sages” to recommend electoral reform.  Parliament approved a measure to study reforming the Italian Republic’s electoral process.  Among the ideas being considered are the following: changing the nature of the Senate, the upper chamber, as a check on the house to a regional assembly; changing the allocation of seats in the Chamber of Deputies, the lower chamber, and the direct election of the president.

            The unprecedented center-right-left government has survived former Premier Silvio Berlusconi’s legal troubles.  He leads the center-right party, which is critical for the stability of the government.