Rendell: Lower sales tax but on more items

HARRISBURG, Pa. - February 9, 2010 -- Gov. Ed Rendell on Tuesday presented lawmakers with a $29 billion spending plan that would devote more money to schools, prisons and health care for the poor while taxing the sale of many services for the first time.

The proposal would increase spending by $1.1 billion, or about 4 percent, and relies on nearly $2.8 billion in federal stimulus money - some of which has yet to be approved by Congress - to augment state revenues amid a stubborn recession that continues to cut deeply into state tax collections.

The biggest surprise was Rendell's proposal to reduce the state sales tax rate from 6 percent to 4 percent, but extending it to services and many other transactions that are currently exempt. His plan would keep intact some major exemptions, including those on groceries, clothing and prescription drugs.

Rendell's proposed budget for the fiscal year that starts July 1 is his last as governor. He is barred by law from seeking a third consecutive term.

He is reviving tax increase proposals he has offered before, including a new severance tax on natural gas extraction and extending the tobacco tax to cigars and smokeless tobacco, to help the state bridge a financial cliff after he leaves office.

With the state economy expected to recover slowly from the recession, next year's spending increases also would be supported by other changes, including a speed-up in business' remittance of the sales tax money that they collect, income from commercial drilling for natural gas on state forest land, and taxes on newly legalized table games at Pennsylvania's casinos.

Rendell is calling for a fifth straight large increase for public schools - $355 million, or 6 percent more - a hallmark of his administration that Rendell says will ensure a better economic future for Pennsylvania.

Much of the rest of the increase in spending would go toward services for the poor and disabled, prisons to house an expanding inmate population, public-employee pensions and debt payments.

Rendell also unveiled a plan to help the state deal with the expected expiration of federal stimulus aid in 2011 and a multibillion-dollar spike in pensions costs projected to hit in 2012. The pension proposals would smooth out the expected increases in retirement expenses, possibly putting off some payments until later.

The sales tax plan would eliminate exemptions on 74 items, including candy, gum and personal hygiene products.

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