Center City, Philly.jpg by Axcordion is liscensed under Public Domain
Big improvements to the business climate are on the table in Pennsylvania as the House and Senate pass different bills to lower the state’s sky-high corporate tax rate (corporate net income tax rate or CNIT).
Just last week, the Senate passed two measures to significantly reduce the corporate tax rate, following the House’s recent passage of legislation to do the same. The chambers will have to reach an agreement on which approach to send to the Governor.
The House proposal, HB 1960, would immediately lower the rate by a full percentage point down to 8.99% with a pathway forward to reduce the CNIT to 7.99% by 2025. One Senate proposal, SB 447, would reduce the rate over the course of six years. Every year the state would reduce the corporate tax rate by 0.5% until it reaches 6.99%.
An alternative Senate proposal (SB 771) sponsored by state Senator Ryan P. Aument would reduce the corporate tax rate to 6.99% by 2024 with provisions to lower the CNIT to 5.99% by 2025 if the state is able to reach certain revenue goals. Senator Aument’s legislation not only provides immediate tax relief to corporations by lowering the tax rate to 6.99%; it also provides a pathway for further CNIT reform in the future if revenue goals are met.
Despite the bipartisan support for lowering the corporate tax rate there appears to be some contention on how to pursue lowering the CNIT in the state. Governor Wolf has stated that lowering the tax rate that businesses pay is a priority in his last budget proposal for the Keystone state. Despite this talk, Governor Wolf’s plan is a trojan horse that would lower the CNIT but at the extreme cost of giving more power to the state’s Department of Revenue to harass corporations for out of state profits, and would essentially deem them guilty until proven innocent.
The decision to lower the state’s CNIT is a well-informed policy proposal. A recent study showed that states with the lowest CNIT in the nation experienced 10% higher growth. With states in the surrounding area having more competitive corporate tax rates Pennsylvania lawmakers are planning on lowering the tax rate to keep businesses operating within their borders and to attract new ones as well. The Keystone state is trying to avoid the same fate as New Jersey who has been hemorrhaging jobs and businesses due to the state’s exorbitantly high business tax rate.
Jason Gottesman, a spokesperson for the House Republicans, commented on the move to reduce the corporate tax rate: “I think everybody’s on the same page, generally, that the current 9.99% rate is a big stop sign,” Gottesman said. “When people want to come look and invest in Pennsylvania, we want to make sure that we’re reducing that in a way that actually makes Pennsylvania competitive.”
The Republican authored bills provide immediate relief while providing future revenue triggers to ensure that the state can continue lowering the tax rate in the future based on revenue growth, avoiding any revenue surprises.
Permanent relief should be the goal for both Democrats and Republicans who support reducing Pennsylvania’s absurdly high corporate tax rate. Governor Wolf’s sneaky power grabs should be avoided. If the governor is serious about making the state competitive, he’ll sign whichever straightforward cut is sent to his desk.