PA Governor Wants to Cut Tax Rates, Shrink Tax Code

PA Governor Wants to Cut Tax Rates, Shrink Tax Code
April 12, 2013

Eric Boehm

Eric Boehm writes for the Pennsylvania Independent, where this column first appeared. (read full bio)

It’s going to take more than a decade, but the first small step to reducing Pennsylvania’s corporate income tax could be taken by the end of the spring.

A Corbett administration plan to overhaul business taxes in Pennsylvania will improve the state’s competitiveness and increase opportunities while cracking down on some corporations that try to cheat the system, Revenue Secretary Dan Meuser said Thursday during a hearing of the House Finance Committee.  No specific legislation was considered at the hearing.

“We in Pennsylvania, of course, want to be on the short list to attract the best companies in the world to Pennsylvania,” Meuser said. “It will be one big step in the right direction.”

In his February 5 budget address, Gov. Tom Corbett (R) pitched a litany of business tax changes he said he would like to see approved before the end of June.

Lower Corporate Tax

Among them is a long-term plan to reduce Pennsylvania’s corporate income tax from 9.99 percent to 6.99 percent by 2025, the closure of several tax loopholes and rarely used deductions, and the continued phase-out of the capital stock and franchise tax, which businesses pay on physical assets, similar to a property tax.

The administration’s projections show the changes would produce 18,000 jobs and grow Pennsylvania’s gross domestic product by $2.8 billion by 2030.

During a day-long hearing on the proposed tax changes Thursday, Republicans seemed generally in favor of most of the measures while Democrats alternately voiced support for things like closing some tax loopholes and reducing the complexity of the tax code for small businesses. Democrats also suggested the package should go farther in cracking down on corporations that register in Delaware and other onshore tax havens to avoid Pennsylvania’s high corporate income tax rate.

“I’m curious why there is no effort made to close that (Delaware) loophole,” said state Rep. Phyllis Mundy (D-Luzerne), minority chairwoman of the committee. “To me, that leaves the rest of Pennsylvania to pick up the tab.”

Concerns Over Out-of-State Assets

Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, a liberal think tank in Harrisburg, also was skeptical of the changes. She suggested Pennsylvania join 23 other states in adopting “combined reporting” – laws that require businesses to file taxes based on all revenue they collect in all states, rather than breaking down their filing on a state-by-state basis.

Meuser said the state was adding more auditors and increasing scrutiny of businesses that deliberately shifted assets out of Pennsylvania to avoid paying taxes, but cautioned that cracking down too hard in a difficult economic climate “would cause more harm than good,” prompting companies to move elsewhere.

And Pennsylvania already is struggling to compete with other states when it comes to tax rates. The corporate tax rate of 9.99 percent is the second highest in the nation, Meuser said. Iowa is No. 1 with top rate of 12 percent.

According to data from The Tax Foundation, a nonpartisan Washington, D.C., think tank, Pennsylvania ranks 19th in the nation for overall business tax burden.

Support for Smaller Code

In addition to lowering the tax rate, the package includes a number of measures meant to streamline and reduce the number of pages in the tax code, Meuser said.

That’s a major selling point for small businesses in the state, said Kevin Shivers, state director of the Pennsylvania chapter of the National Federation of Independent Businesses.

It can cost a small business in Pennsylvania much as $74 per hour to handle tax paperwork, he said.

“The complexity is the number one problem for our members,” Shivers said. “This plan will help small businesses because it’s going to simplify the tax code.”

Eric Boehm (Eric@PAIndependent.com) reports for the Pennsylvania Independent. Used with permission of PAIndependent.com.

Eric Boehm

Eric Boehm writes for the Pennsylvania Independent, where this column first appeared. (read full bio)