A report by the Tax Foundation concluded that the migration of taxpayers and their incomes out of the state has been occurring for more than 15 years and the one constant has been the state’s tax system.
Scott Hodge, Tax Foundation president, said the trend would likely continue beyond economic recovery at the national level if improvements are not made to the Commonwealth’s business tax system.
While Pennsylvania can boast a 13th best ranking for its individual income tax system, that’s where the positive news ends.
As noted in the report: If Pennsylvania were a nation, it would have the highest overall corporate tax rate in the world at 41.5 percent (federal plus state, accounting for the state-local deduction.)
The Commonwealth has the 11th highest state and local tax burden in the nation. Contributing to the ranking is the 9.99 percent Corporate Net Income tax rate, the second highest of the 50 states. In addition, Pennsylvania is one of only 10 states that also tax business assets, and the 2.89 mill rate is among the highest. With the scheduled phase-out of the Capital Stock and Franchise tax frozen for the third time, that rate will remain in place until 2011. The CSFT is not expected to be eliminated until 2014.
Analyzing IRS and Census figures, the Tax Foundation found that Pennsylvania is gaining people who have little or no income but losing people at all other income levels and who are better educated. This means the state’s economy and tax base are shrinking. Even during 2002-03, when Pennsylvania gained slightly more taxpayers than it lost, it still lost adjusted gross income overall.
A similar annual study by United Van Lines also labeled Pennsylvania as a high outbound state, a trend that it says has continued since 1977. The Commonwealth ranked fourth among the highest outbound states in that study.
The Tax Foundation report illustrates that fixing the economy and spurring job creation requires more than government spending and government programs. It requires addressing factors that determine business’ ability to operate effectively and efficiently, including, but not limited to, improving a crippling tax structure.
The PA Chamber made this point in a letter to the editor that appeared in Thursday’s Philadelphia Daily News. The letter was sent in response to a PDN editorial that touted government jobs and spending as the solution to the stagnant rate of job creation that is occurring as the nation attempts to rebound from the recession.
Click here to read the letter as submitted.
