The Nation's Pulse

Killing Business in Pennsylvania

Alarming decline that can't use Katrina as an excuse.

By 10.24.07

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Here's a question for Allegheny County Chief Executive Dan Onorato and members of the Allegheny County Council: How does the Pittsburgh metro region stack up against the rest of the nation in population growth?

The answer is we're dead last -- in the cellar -- except for post-Katrina New Orleans.

Between 2000 and 2006, while the U. S. population was expanding by 18 million, the population of the seven-county Pittsburgh metro area dropped by 58,585. Take away the hurricane and that's the nation's largest decline in metro population -- the worst record in the country in attracting new people or keeping the ones we have.

And within this seven-county decline, Allegheny County leads the pack in driving people away, accounting for 96.4 percent of the population drop -- a net loss of 56,457 people out of the 58,585 total.

Now, here's the second question for members of the Allegheny County Council as members get ready to vote on Onorato's proposal to raise the tax on car rentals and impose a new 10 percent drink tax: Does anyone understand why Macy's is busier during a sale, or how McDonald's, with low prices, can make a profit of more than $1 billion per quarter?

The answer is that prices matter. In a competitive environment, Macy's won't maintain its customer base if its merchandise is overpriced. Its customer population will drop.

The same is true for Pennsylvania and Allegheny County. Just as stores compete for customers, states and counties compete with every other state and county for business -- and, more and more, compete with every part of the globe in what's now an increasingly integrated global economy.

And just as prices matter to consumers, taxes matter to businesses. For consumers, the cost of shopping in overpriced stores is a lower standard of living. For companies, the price of locating in a region that is overtaxed (and overregulated and overly litigious) is higher operating costs and a less competitive market position.

Imagine for a minute that you're the vice president for site location with a major company and searching for the best place for a new factory or corporate headquarters. With a quick check of the "2008 State Business Tax Climate Index," published by the Tax Foundation, you'd find the following:

* Pennsylvania is at the top in taxation of corporate income, ranking 49th out of the 50 states in this measure of the business climate (i.e., "Iowa's 12 percent corporate income-tax rate qualifies as the worst ranking among the states, followed by Pennsylvania's 9.99 percent rate").

* Pennsylvania ranks 49th among the 50 states with the nation's second-highest capital stock tax (only West Virginia is higher) -- a tax on intangible personal property, e.g., bonds, trademarks, etc.

* Impacting the cost of transportation, Pennsylvania's 32.3 cents-per-gallon tax on gasoline is the fourth highest in the nation (only New York, Washington state and Wisconsin are higher).

* With its 39.2 cents-per-gallon tax on diesel fuel, Pennsylvania has the highest per-gallon tax in the nation, ranking 50th among the 50 states.

* With the country's fourth-highest rate of overall taxation on property, Pennsylvania ranks 47th among the 50 states, down from its 42nd position in last year's ranking. In the same way, Pennsylvania's ranking got worse over the past year compared with other states both in terms of sales tax rates and the cost of unemployment insurance.

In short, we're at the bottom and becoming even less competitive.

Still, to update his research, a vice president of site location might want to check the most recent events to see if we're at least moving in the right direction. What he'd find is a projected $965 million-per-year hike on the state level in additional road tolls and Dan Onorato's proposal to increase drink taxes in Allegheny County by an estimated $35 million per year.

With just these two changes, that's an additional $1 billion each year transferred out of the private sector into the less-efficient public sector, the exact opposite of what we should be doing in this region in order to encourage economic development. It's like Poland, 1970.

"In the past decade," says Dan Onorato, "Allegheny County has undergone a dramatic renaissance." He's wrong, and now he's asking that we dig ourselves into an even deeper hole.

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About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.