Pennsylvania Isn’t Competitive--What Can We Do About It?

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In the first segment of our treatise on Pennsylvania’s economic competitiveness, or lack thereof, we laid out the stubborn fact that the state is continuing to get smaller, older, and poorer. Opportunistic competitor states have seized on this fact, outpacing us in key economic areas and attracting workers, families, and businesses. Politically, we’ve lost a congressional seat due to this trend; economically, the domestic migration of ex-Pennsylvanians has hit home. In the newest rankings from the economists at the American Legislative Exchange Council, Pennsylvania comes in at 35th in economic outlook and 42nd in economic performance. For a state with the location, resources, and people that we have, these are abysmal results.

What can we do it change it? We’ve mapped out four of the biggest obstacles to economic growth and how to reverse them.

  1. Regulatory reform. Pennsylvania has so many regulations on the books that business need to devote enormous resources to complying with them. This includes the tedious permitting process, which has driven many businesses out of the state for greener (and more efficient) permitting pastures. Then there are the state’s power-hungry, overreaching departments, which seem to exist to nickel and dime law-abiding Pennsylvanians. The worst actors are the Department of Environmental Protection, PennDOT, and the Pennsylvania Liquor Control Board. The scope of these bureaucratic departments must be cut, permitting should be corrected with solutions like “deem-approved” permitting, and regulations that block innovation should be repealed. Fewer regulations equal a more competitive Pennsylvania.
  2. Tax environment. We’ve heard for some time that Pennsylvania’s very high corporate net income tax would be reduced dramatically. That has not happened. Our fuel tax ranks in the top 10 in the nation, hitting most consumers on a daily basis. Travelers must endure steep turnpike tolls. Our estate tax levies penalties on those transferring property after a loved one dies, and our income tax ranks 13th-worst in the country. Include the aggressive impact fees and taxes on natural gas extraction, and you have a tax climate that stifles both private enterprise and family formation.
  3. Net Operating Loss Reform. To attract entrepreneurs to our state, we have to make it sensible for them to start a business. Many new businesses lose money in their first year or two. One innovative way to assist entrepreneurs is letting startup companies offset tax payments by “carrying forward” losses from their formative years or unexpectedly bad years.  More favorable tax rules would help us attract young innovators who want a safe haven to get their companies up and running.
  4. Workforce. We often hear about shortages in certain industries, but little is done about it. Pennsylvania is still among the hardest states for teachers to get certified in. On average, it takes the typical teacher nearly six years to get into the classroom. Similar barriers exist with nurses and healthcare workers when it comes to crossing state lines to work here. We need to make it easier, for example, for Marylanders to cross the Mason–Dixon line to work in our hospitals. When there’s a shortage, adjustments must be made with licensing and reciprocity rules to attract talent.

Finally, there are thousands of trade jobs in our state sitting vacant. We must emphasize these career paths more and stop focusing so single-mindedly on promoting traditional four-year college degrees. The ROI on such degrees is plummeting; by contrast, good manufacturing and supply chain jobs are plentiful, and they are often more important to our communities.

These four economic categories deserve serious attention if Pennsylvania is going to get back onto the economic map and start vying for the talent, innovators, and business owners who are trending away from the Keystone State. Mottos are nice, and tax credits and other government subsidies may offer short-term boosts, but our reforms must be more fundamental if we are to make up the competitive ground we’re losing to other states.

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