Joined by several local state representatives at Borders Books in East Liberty, Gov. Edward G. Rendell put forth five proposals he said would head off the bulk of a looming budget crisis that could leave the state with a $5.6 billion deficit in two years.

“There is a storm coming,” he said. “Only about $5 billion in the $26 billion budget is discretionary spending. The rest, including Medicaid, pensions and corrections cost, we’re mandated to pay. In 2012, we’re going to have another $2 billion in pension costs and another 62,000 people eligible for Medicaid.”

NOT BUSINESS AS USUAL—Joined by state Rep. Joe Preston, D-East Liberty, Governor Edward G. Rendell pushes for lower business and sales tax rates and fewer tax exemptions to head of a projected $5 billion deficit in 2012.

He said 167 lines in the budget were eliminated entirely and all 657 lines were trimmed. But with the recession costing the state $3.2 billion in lost revenue he projects a $500 million deficit for the end of this year. However, Rendell said he has a five-point plan to mitigate the looming losses that includes cuts in business tax rates, new taxes on “big oil” and “big tobacco” and the elimination of antiquated tax exemptions and loopholes.

He said his proposals will give businesses an advantage over those in neighboring states and could spur new hiring and growth. First as he has said before, he wants to place a severance tax on gas extracted from the Marcellus Shale deposit.

“Other states do this and it has not slowed or stopped development,” he said. “And when we have oil companies bidding $2 billion more than we expected for leases, I think they can afford it.”

Rendell also repeated his call for a tax on smokeless tobacco and cigars, which is not taxed like cigarettes. These two changes alone would generate $500 million by 2011, he said.

Thirdly, Rendell proposed lowering the sales tax rate from 6 percent to 4 percent (from 7 percent to 4.7 percent in Allegheny County) while also eliminating 74 exemptions currently in the tax code.

For consumers, this would mean paying taxes on things like electricity and any electrical, heating or plumbing repairs; candy and gum; funeral services, caskets, vaults; gratuities; residential telephone, and water/sewer service. It would, he said, bring in $1 billion in annual revenue.

This portion of the Governor’s proposal has already received negative responses.

In a statement released shortly after the press conference, State Sen. Jane Orie, R- McCandless, said:

“At a time when average Pennsylvanians, and small businesses, are attempting to climb their way out of the worst recession since the Great Depression, the governor’s proposal is putting more obstacles in our path to prosperity. In the end, as with all tax increases or new taxes, the average taxpayer will pay for this half a billion tax increase because the costs of the tax will be passed onto them through the products and services they buy.”

Rendell has also proposed cutting the Corporate Net Income Tax from 9.9 percent to 8.9 percent and closing the “Delaware Loophole” which he said allows 71 percent of companies in the state to pay no tax. He would also uncap companies’ ability to write off operating losses.

“That way everyone pays, but the burden is less,” he said.

Asked if he thought the legislature would agree to his proposal, Rendell said the impending budget disaster could give his plan some impetus, but history would indicate otherwise.

“It’s a plan—a good plan. But, the Legislature has a history of—even before I got here—not to do anything difficult today when you can do something more difficult tomorrow,” Rendell said. “That’s a dangerous history and that’s one of the things that has put us in the state we’re in.”

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