HARRISBURG -- State House Republicans are on a collision course with Democratic Gov. Ed Rendell over taxing, spending and borrowing plans for the 2008-09 fiscal year, which starts July 1.

A group of 50 GOP House members, led by Rep. Mike Turzai of Bradford Woods, called yesterday for a two-step reduction in the state income tax, from its current rate of 3.07 percent.

Some Republicans want to reduce it to 2.99 percent starting July 1, while others called for a cut to 2.93 percent. Then in 2009-10 they would reduce it further, to 2.8 percent, which is where it was in 2003 when Mr. Rendell became governor. He initially wanted to increase it to 3.75 percent in 2003, but after battles with Republicans settled on the current 3.07 percent.

With an economic slowdown apparently in progress nationally, and perhaps even a recession, Mr. Rendell doesn't favor an income tax reduction, saying it will cost the state the money it needs to pay its bills.

"This isn't the time to cut the personal income tax," he said yesterday.

Mr. Turzai admitted the state would lose about $270 million a year with a reduction to 2.99 percent, but said putting money back into the pockets of middle-class taxpayers will allow them to spend more and revive a slowing economy.

A cut to 2.99 percent would mean a $40 tax savings for someone earning $50,000 a year.

"Let's return the dollars to the people and businesses that earned them," he said. "That will make a difference in the economy."

Mr. Turzai also called for eliminating a gross receipts tax now applied to electric bills, which could cost the state up to $50 million.

He also called for a business tax change, allowing companies an unlimited Net Operating Loss that could be carried over from one year to another. Currently there is a limit of $3 million per year on such carryovers, which allow companies to lower their taxes in one year by using losses incurred in a previous year. Uncapping the Net Operating Loss would help the business climate but could cost the state $160 million.

Another GOP priority is to control state spending, going so far as a "zero growth budget." That doesn't mean the bottom line for 2008-09 would be exactly the $27.2 billion it is this year, but spending couldn't increase more than the rate of inflation, often about 3 percent.

Mr. Rendell said he expects an overall rise of 4.2 percent in the budget he'll propose today, for a bottom line of about $28.3 billion. He will propose somewhat higher spending, an increase of 5.9 percent, for public education. Other spending increases are likely for welfare, medical assistance for the poor and prisons.

Mr. Turzai complained that during the five years Mr. Rendell has been governor, annual spending has grown at about 7 percent, which Mr. Turzai said is too much.

The Republicans also said they would oppose additional bonding, or borrowing, by the state. This is opposite to Mr. Rendell's plan to spend $700 million to repair state infrastructure, including bridges, dams and rail lines.

Borrowing through bond sales increases state interest payments for at least 20 years into the future. Mr. Rendell also wants to spend an additional $750 million in the state's capital budget, which pays for bricks-and-mortar projects.

"This administration turns to borrowing, using accumulated debt to fund its pet projects," Mr. Turzai said.

Mr. Rendell said state money invested in projects leads to more private funding and results in new jobs and tax money. He said the state will end this current fiscal year June 30 with a $250 million or so surplus, which is better than many other states that are facing deficits.