Pennsylvania business advocates joined Governor Tom Wolf (D) at the York County Economic Alliance on Monday to welcome an upcoming change in tax policy championed by entrepreneurs across the commonwealth.
Via the new budget agreed to this summer by Wolf and the Republican-controlled general assembly, Pennsylvania will begin a decade-long, phased halving of its corporate net income tax (CNIT). Of the 44 states with a business income tax, the size of the Keystone State’s current 9.99-percent rate is second only to New Jersey’s 11.5 percent tax. Besides these two states, only four others levy top business income tax rates that exceed 9 percent.
Meanwhile, Washington, Nevada, Wyoming, Texas, and Ohio have no CNIT but do charge businesses a gross receipts tax, which economists generally believe stifles wealth generation even more severely, according to the pro-free-market Tax Foundation. (The latter tax applies to companies’ total sales income without deductions for expenses.) Wyoming and South Dakota levy neither a gross receipts tax nor a CNIT.
Once Pennsylvania’s CNIT falls to 4.99 percent 10 years from now, it will be the 35th-highest such tax in America, assuming other states’ corporate levies stay the same.
“We’re here to celebrate a new chapter in Pennsylvania’s history,” Pennsylvania Chamber of Business and Industry President Luke Bernstein said. “We have so much to offer [but] our uncompetitive tax structure caused us to languish. Thanks to this bipartisan agreement, we’re taking a holistic approach to make Pennsylvania more competitive.”
Now nearing the end of his eight-year governorship, Wolf is initiating major tax relief for the first and only time. Throughout his stint in Harrisburg, he proposed numerous tax increases and signed several of them, including expanded income and sales taxes. He has also attempted to impose a natural gas severance tax over and above the already substantial impact fee that energy companies pay to extract gas from the Marcellus Shale sedimentary rock underneath much of the state.
In his remarks in York on Monday, Wolf suggested he always felt at least the CNIT too heavily burdens those who pay it.
“I’ve been calling for a lower corporate net income tax rate since I first took office and I’m thrilled that we were able to make this happen in my last budget,” Wolf said. “This lower rate is a game-changer for business in Pennsylvania. We’re going to ensure tax fairness, make Pennsylvania a top location for businesses, and bring new, good-paying jobs here for Pennsylvanians.”
While proponents of lighter taxation have supported the coming CNIT cut, some urge vigilance when it comes to decisions lawmakers could make during its gradual decrease. They point to the capital stock and franchise tax (CSFT) that the commonwealth used to impose on businesses’ accumulated wealth.
In 2000, Republican Governor Tom Ridge signed legislation that scheduled the roundly hated CSFT for elimination 10 years thence. But Ridge’s GOP successor Mark Schweiker and later Democratic Governor Ed Rendell delayed that tax’s phaseout which ultimately took 17 years. (Wolf, who made no policy regarding the CSFT, cheekily bragged in 2019 that he “finished the job” getting rid of it.)
A recent budgetary analysis by the Harrisburg-based Commonwealth Foundation observed that those setbacks created uncertainty for Pennsylvania’s business community and warned against introducing any similar holdbacks for the sake of increasing future state spending.
Should state officials manage to keep CNIT reduction on schedule, its effect on the business community could contribute to reversing unwelcome population trends the commonwealth has lately endured. According to Pennsylvania’s Independent Fiscal Office (IFO), the state experienced only 0.2 percent yearly population growth on average from 2010 to 2020 and the state’s working-age demographic actually shrunk by 0.1 percent on average annually.
In a presentation to the State Senate in February, IFO Director Matthew Knittel said southern states that are now creating more jobs are largely receiving the outflow of Keystone State residents. Among those states are relatively low-tax Florida, North Carolina and South Carolina.
Wolf administration officials expressed optimism that the new corporate-tax policy will enhance Pennsylvania’s attractiveness for job creators and, in turn, job seekers.
“Lowering the CNIT makes Pennsylvania more competitive in attracting business and economic development projects and means more jobs and more investment coming into our communities,” Department of Community and Economic Development Acting Secretary Neil Weaver said. “This also shows that we are committed to keeping existing Pennsylvania businesses here in the commonwealth by offering a business climate that makes sense for companies’ bottom line as they continue to grow.”
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Bradley Vasoli is managing editor of The Pennsylvania Daily Star. Follow Brad on Twitter at @BVasoli. Email tips to [email protected].
Photo “Tom Wolf” by Governor Tom Wolf. CC BY 2.0. Background Photo “Pennsylvania State Capitol” by Governor Tom Wolf. CC BY 2.0.