Lincoln * Institute

Ralph R. Reiland

Ralph R. Reiland

The B. Kenneth Simon Professor of Free Enterprise at Robert Morris University

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of Public Opinion Research, Inc.

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Reflections

Poor Business Climate = Crummy Economy

by Ralph R. Reiland
 

In evaluating Pennsylvania's economic performance, a good place to start is by measuring how the state is doing compared with other states.

In a ranking of states by the rate of real (adjusted for inflation) economic growth in 2013, Pennsylvania officially ranked 47th, according to the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce.

Only three states – Virginia, Maryland and Alaska – had lower 2013 economic-growth rates than Pennsylvania.

Pennsylvania's economic growth rate of 0.7 percent was less than half the 2013 nationwide growth rate of 1.8 percent.

Continuing through the next year, the "Pittsburgh region ranked in the bottom fifth of the world's largest cities in economic growth for 2014," reported by the Pittsburgh Tribune-Review's Chris Fleisher, based on Brookings Institution data, in "W. Pa's sluggish economic growth in cellar."

Reported Fleisher, "Per capita economic output in the seven-county Pittsburgh region was stagnant last year and employment grew just 0.4 percent, ranking 253 out of 300 cities included in the report," reported Fleisher.

In a Census Bureau 50-state report on population growth from April 2010 through June 2014, Pennsylvania ranked 42nd. Pennsylvania's population growth rate of 0.67 percent during the aforementioned 2010-14 period was less than a fifth of U.S. population growth rate during the same time period.

In "2013 Best Worst States for Business," a summary of Chief Executive magazine's ninth annual survey of CEO opinion on business climates in 50 states, Pennsylvania ranked 42nd.

The "CEO Comments" section in Chief Executive includes these four observations: (1) "God help anyone dealing with Pennsylvania's Department of Revenue." (2) "I consider Pennsylvania the 'stupid state,' not because it is consistently bad, but rather is inconsistent, which is far worse to plan business." (3) "Pennsylvania is by far the highest taxed for corporations." (4) "Environmental regulations and the bureaucracy in Pennsylvania make it difficult to plan and build in a timely manner."

Reports from the Internal Revenue Service and American Legislative Exchange Council show that business owners, workers and consumers vote with their feet, migrating from high-tax states to low-tax states.

The same council found that "more than 200,000 people left each Northeastern state between 2003 and 2012," reported the Heartland Institute's Heartlander Magazine in October 2014, while "Southern states experienced an average net population gain of about 300,000 people" during the same years.

"Data from the IRS help illuminate the reasons behind the shifting migratory patterns of taxpayers," continued the Heartlander. "Between 1995 and 2010, an analysis of 134 million taxpayer records shows $2 trillion in net adjusted gross income, along with the taxpayers themselves, flowed from states with high taxes to states with low taxes."

As the Pennsylvania General Assembly considers Gov. Tom Wolf's tax proposals, only Iowa, with a 12 percent corporate net income tax, has a higher tax rate on corporate income than Pennsylvania. Similarly, only 20 states have a Capital Stock and Franchise Tax.

"We're the only state that assesses both a business assets tax and a corporate net income tax," explained David N. Taylor, executive director of the Pennsylvania Manufacturers' Association.

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