Pennsylvania’s business tax climate has long put the Commonwealth at a competitive disadvantage with other states.
Now the Commonwealth risks falling further behind in a race that has critical implications for how well the state recovers from the worst financial crisis since the Great Depression.
Three states have recently proposed corporate rate cuts as a way to boost job growth and economic recovery, according to the Council on State Taxation. And all three states already have corporate tax rates that are below Pennsylvania’s 9.99 percent.
A proposal in Arizona would reduce the corporate income tax from 6.97 percent to 4.5 percent over four years, beginning in 2012. In Florida, the governor is crafting a proposal to reduce the state’s 5.5 percent corporate income tax, and in Idaho, House leaders are expected to introduce a plan to lower the 7.6 state corporate income tax by one-third over the next 10 years, despite a projected $150 million budget shortfall.
Meanwhile, Pennsylvania has the 11th highest state and local tax burden in the nation, according to a recent Tax Foundation study. 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.
If Pennsylvania were a nation, it would have the highest overall corporate tax rate in the world at 41.5 percent (federal and state, accounting for the state and local deduction). As the study pointed out, “Taxes can clearly create a hostile environment for business investment and job creation, and Pennsylvania appears to be a prime example of that.”
Another recent competitiveness study also gave the Commonwealth low marks for its economic competitiveness, underscoring again the need for improvements to the state’s overall business climate, specifically, its business tax structure.
The American Legislative Council’s “Rich States, Poor States” study ranked Pennsylvania 46th for economic performance, which considers personal income per capita growth, absolute domestic migration and non-farm payroll employment growth, and 42nd in economic outlook, which measures 15 variables, among the 50 states.
Pennsylvania’s high business taxes contributed to the poor showing.
At a time when most Pennsylvanians and Americans will measure true economic recovery on unemployment rates that drop dramatically and job opportunities that are readily available, the Commonwealth cannot afford to fall further behind in the economic competitiveness race.
For more information on PA Chamber members’ state tax policy, visit http://www.pachamber.org/www/advocacy/taxes/business/index.php.
