The Pennsylvania Manufacturers

1
SLAYING THE SILENT KILLER

• The Pennsylvania Manufacturers Association

October 2003
www.pamanufacturers.org
2
THE SILENT KILLER

• Between 1970 and 2002, state and local government
  spending far outstripped population and inflation
  growth.

3
KILLER FACTS

• PAs population grew by an annual average of
  0.14 between 1970-2002 (US 1.09).
• US average annual inflation was 4.89 between
  1970-2002 and 2.46 from 1993-2002.
• State General and Non-General Fund nominal
  spending grew by an annual average of 7.80
  between 1970-2002.
• State and Local nominal spending grew by an
  annual average of 4.75 between 1993-2002.

4
THE SILENT KILLER
5
Agenda

• PAs Poor Economic Performance
• High Government Spending Taxation
• PA Manufacturing Job Losses
• Twelve Ways to Slay the Silent Killer

6
PAs Poor Economic Performance Gross State
Product (GSP)

• From 1990-2001, PAs economic output GSP grew
  noticeably slower than the US average.
• Among the twelve states that are PAs closest
  economic competitors, PAs growth rate was 2nd
  from last over the past 12 years.

7
PAs Economic Competitor States (CS) CA, FL,
GA, IL, MD, MI, NC, NJ, NY, OH, TX VA
As reported by the Pennsylvania Economy League.
8
Gross State Product, 1990-2001
Source Bureau of Economic Analysis, US Dept. of
Commerce. NOTE CS does not include PA.
9
PAs Poor Economic Performance Job Growth

• During the 1990s, Pennsylvania
• lagged national growth in almost
• every occupation. Pennsylvania is
• expected to continue this trend.

10
PA and US Employment Growth by Industry,
1990-2001
Source BEA, BLS and the PA Dept. of Labor and
Industry, Center for Workforce Development.
F.I.R.E. Finance, Insurance Real Estate.
11
Projected PA and US Employment Growth by
Industry, 2000-2010
Source BLS and the PA Dept. of Labor and
Industry, Center for Workforce Development.
F.I.R.E. Finance, Insurance Real Estate.
12
Personal Income Growth, 1990-2002

• PAs personal income growth 65.97
• US personal income growth 82.63
• Competitor States 81.40
• PA had the 3rd lowest personal income growth
  among Competitor States

13
Personal Income Growth,1990-2002
Source Bureau of Economic Analysis, US Dept. of
Commerce. NOTE CS does not include PA.
14
High Government Spending Taxation

• Pennsylvanias state and local FY 2001-02 nominal
  spending was at least 73 billion.
• State and local governments spent 5,934 for
  every man, woman, and child in the Commonwealth
  (2002).

Source The Commonwealth Foundation. 2002 local
government figures are estimates.This figure is
a conservative calculation and does not include
federal government expenditures.
15
High Growth of Real Government Spending for
BothDemocrat and Republican Governors, 1970-2003
Source The Commonwealth Foundation. Data
compiled from Commonwealth of Pennsylvania,
Governors Executive Budgets, 1970-71 through
2003-04
16
For every 7.4 private sector employees in
Pennsylvania

• there is one state or local government
  employee.

Source BLS.GOV. May 2003. Data not seasonally
adjusted. State 164,900 Local 493,900 Private
Sector 4,905,000. 1990-2003 Private Sector
employment grew 9.89 PA State and Local
Government employment grew 16.85
17
In December 2002, the number of PA federal, state
and local government employees passed the number
of PA manufacturing employees.

• There are now more takers than makers.

18
PA Government Jobs vs. PA Manufacturing Jobs,
2000-May 03
Source Bureau of Labor Statistics. Data
seasonally adjusted. May 2003 figures. Federal,
State, and Local.
19

• In 2000, Pennsylvanias business taxes per
  employee were 158 of the United States Average.

Source PA Economy League
20
State Local Business Taxes Per Employee, 2000
Source PA Economy League. NOTE CS does not
include PA.
21
Pennsylvania

• ranks 2nd in the nation in corporate capital
  taxes (Capital Stock and Franchise Tax - CSFT)
• ranks 3rd in the nation in corporate income
  taxes (Corporate Net Income Tax - CNIT).
• and West Virginia are the only states in the Top
  10 in the nation in rates of taxation on both
  capital and income.

22
Pennsylvania Business Taxes
23
Total CSFT Cash Payments by Industry, 1998-2002
(in thousands)
Source The Statistical Supplement for The PA Tax
Compendium, Fiscal Year 2001-02. PA Department of
Revenue, Bureau of Research, 02/2002. Not
classified Companies that do not fit into the
SIC code, listed an invalid code, or left the
field blank.
24
Total CNIT Cash Payments by Industry, 1998-2002
(in thousands)
Source The Statistical Supplement for The PA Tax
Compendium, Fiscal Year 2001-02. PA Department of
Revenue, Bureau of Research, 02/2002Not
classified Companies that do not fit into the
SIC code, listed an invalid code, or left the
field blank.
25
PA Manufacturing Job Losses

• 228,300 PA manufacturing jobs have been lost
  since 1990.
• 118,000 of those PA manufacturing jobs were lost
  in 2001 and 2002 together.
• 123,800 PA manufacturing jobs have been lost
  between January 2001 and May 2003.

Source The Bureau of Labor Statistics.A new
standard of measurement, The North American
Industry Classification System, went into effect
in January 2003. Administrative and warehousing
jobs previously considered part of manufacturing
were segregated out.
26
Pennsylvania Manufacturing Employment 1990-2003
Source Bureau of Labor Statistics. Employment is
seasonally adjusted
27

• Hypothetically, if Pennsylvania continued to lose
  manufacturing jobs at the current pace (May
  2002-May 2003), all manufacturing in the
  Commonwealth would be wiped out by mid-February
  2024.

28
Pennsylvania Average Annual Salaries by Industry,
2001
Source Center for Workforce Information
Analysis, Pennsylvania Department of Labor
Industry. 2001 SIC figures. Average annual wage
Total wages/Monthly average number of employees
29
The manufacturing industry has the strongest
multiplier effect on employment every time a
manufacturing job is created, between three and
seven jobs result.
30
Twelve Ways to Slay THE SILENT KILLER
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• 12. Research Development (RD) Tax Credit
• PAs RD tax credit is capped at 15M and sunsets
  after 2006. It is claimed against the CNIT, CSFT
  and PIT.
• Increases in excess of base year RD research
  expenses within PA generates a 10 tentative
  credit.
• For approved credits in 2001, manufacturers
  claimed the largest share, over 69, of approved
  credits.
• PMA recommends repealing the cap and sunset
  provisions to increase the incentive for firms,
  especially manufacturers, to expend resources on
  RD in PA.

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• 11. Single Sales Factor (SSF)
• SSF would eliminate the increase in PA CNIT
  liability that corresponds with an increase in
  payroll and property (physical plant) investment
  in PA.
• Current PA CNIT liability is determined by
  weighing payroll, property and sales factors at
  20, 20 and 60, respectively.
• SSF would weigh the sales factor at 100.
• PA would be the 11th state to enact a SSF.

SSF States CT, IL, IA, MD, MA, MS, MO, NE TX.
WI signed a SSF into law in 2003 to be fully
implemented by 2008.
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• 10. Career Development Credit (CDC)
• Enacting the CDC a job training tax credit -
  could achieve better performance results relative
  to state funded workforce programs.
• The CDC reduces the cost of private employee
  training.
• PA would be the 19th state to offer a job
  training tax credit.
• Funds for the CDC would come from the
  approximately 400M allocated to the states 49
  separate workforce development programs, which
  should be reduced or eliminated.

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9. Manufacturers' Investment Credit for PA

• 20 credit for the costs of acquiring tangible
  personal property, including machinery,
  equipment, buildings and structural components of
  buildings, used in manufacturing as well as
  processing, assembling and research in PA.
• Non-refundable credit against the PA Corporate
  Net Income and Capital Stock and Franchise taxes
  where any unused credit would carry over for 20
  years.
• PA would be the 14th state to implement a
  Manufacturers Investment Credit.
• This would encourage manufacturing expansion in
  PA for economic growth and job creation.

As of January 2003. Site Area
Development,Online, Site and Facility Planning.
35

• 8. Reduce the Corporate Net Income Tax to 5.99
  This would place PA in a competitiveposition by
  having a maximum rate below the 2002 U.S. average
  of 6.635.

7. Continue and Accelerate the Phase-Out of the
Capital Stock Franchise Tax (CSFT)PMA
recommends not only maintaining the CSFT
phase-out, but accelerating it so the tax is
repealed on or before 2009 as originally signed
into law.
CSFT is scheduled to be repealed in 2010.
36

• 6. Enact a Statute of Repose
• Establish a ten-year limit on the useful life of
  manufactured goods.
• This would protect manufacturers from being sued
  unnecessarily for products that exceed their
  functional life and result in injury.

• 5. Unemployment Compensation (UC) Reform
• In 2001, PA Unemployment Compensation taxes were
• ? 3.6 of taxable wages the highest in the
  nation.
• ? 0.9 of total wages 7th highest in the
  nation.
• Lower the UC tax to at least the U.S. average of
  1.9 (taxable wages) or 0.5 (total wages) and
  review eligibility benefits.

37

• 4. Place Caps on Damage Awards
• In 2002, lawsuits cost PA businesses 4.2 billion
  more than they did in states with a 250,000 cap
  on non-economic damage awards.
• Amend the Pennsylvania Constitution to allow a
  cap on non-economic damages.
• Cap non-economic damages at 250,000 the same
  as California or less.

38
Competitor States with Realistic Caps on
Non-Economic Damages
Source US Dept. of Health Human Services and
ATRA. Florida Cap 500,000 Maryland Cap
500,000. Michigan Cap 280,000. Texas Cap
750,000.
39

• 3. Enact Right-to-Work (RTW) Legislation
• A state with a RTW law cannot force an employee
  to join or support a labor union as a condition
  of employment.
• Between 1970-2000, RTW states created 1.43
  million manufacturing jobs, while non-RTW states
  lost 2.18 million. Pennsylvania lost 600,000
  manufacturing jobs.
• There are 22 RTW states as of November 2002 -
  make PA the 23rd.
• Enact paycheck protection require union
  officials to get a member's specific permission
  before charging them the cost of any
  non-bargaining activities.

Source The Commonwealth Foundation and PA
Right-to-Work
40
2. Reduce Government Spending Based on Sound
Economic Principles

• From 1991 to 2000, PA had the 2nd largest real
  per-capita state government spending growth rate
  among the 50 states, at 61.
• During that period, PAs real personal income
  growth rate per-capita was 19 below the US
  average.
• Reducing excessive government spending will keep
  resources in the private sector, stimulating
  economic growth.

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Government spending should be

• Limited to core government functions.
• Neutral among individuals and groups.
• Fair and equitable in decision-making.
• Simple and economical to administer.
• Accountable to taxpayers.
• Enacting these recommendations could save
• PA taxpayers a little over 2 billion annually in
• General Fund spending.

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1. Enact Taxpayer Protections

• Tax and expenditure limitations (TELs) are
  constitutional or statutory provisions designed
  so tax and spending growth does not exceed the
  rates of inflation and population growth or a
  given measure of statewide economic growth.
• States with TELs generally have limited
  government growth and experience more robust
  economic expansion.
• Super-majority provisions require legislative
  votes above a simple majority to raise taxes.

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the 14 states with TELs and/or a super-majority
provision had an overall employment growth rate
of 14.1 and a GSP growth rate of 44.1.
Between 1995 and April 2003

• the 36 other states (including PA) had an
  overall
• employment growth rate of 8.1 and a GSP growth
• rate of 36.3.

Source Gulibon, Grant R. and Armstrong, Thomas
O. The Case for a Pennsylvania Tax and
Expenditure Limitation.14 states with TEL
and/or super-majority provisions AR, AZ, CA, CO,
DE, FL, LA, MS, MO, NV, OK, OR, SD, WA.
44
SLAYING THE SILENT KILLER

• 1. PAs Poor Economic Performance
• Slow economic growth relative to other states
• 2. High Government Spending Taxation
• Killing economic opportunity in PA
• 3. PA Manufacturing Job Losses
• Manufacturing is the keystone of the Keystone
  State
• 4. Twelve Ways to Slay the Silent Killer
• Enact reforms for a more robust economy

45

• Those who do not learn from the past are
  condemned to repeat it.
• - George Santayana

46
SLAYING THE SILENT KILLER

• The Pennsylvania Manufacturers Association

www.pamanufacturers.org