According to the 2010 ALEC-Laffer State Economic Competitiveness Index, Pennsylvania ranked 46th for economic performance (no change from 2009) and 43rd for economic outlook (a one position drop from last year). Since 2008, the Commonwealth has dropped seven positions in the economic outlook category.

The annual study examines 15 policy variables that have a proven impact on the migration of capital — both investment and human — into and out of states. The state rankings are an equally weighted combination of these variables, and each of the factors is influenced directly by state lawmakers through the legislative process.

Pennsylvania ranked near the back of the pack in most of the 15 variables. The state received its lowest marks for its top marginal corporate income tax rate; recently legislated tax changes; debt service as a share of tax revenue; and for not being a right-to-work state.

The study is more evidence that state lawmakers must make economic growth and job creation a priority in the upcoming state budget debate. PA Chamber members are urging lawmakers to reduce government spending; resist placing additional tax burdens on job creators; and make sure that cost-control measures are part of the solutions to the fiscal challenges facing the Commonwealth. Specifically, the looming public pension crisis and the solvency concerns facing the state’ UC Trust Fund (which is broke and operating with more than $2 billion borrowed from the federal government) are two areas in which elected officials must do more than simply throw money at the problem.

The authors of the competitiveness index stressed the importance of controlled government spending in the study’s conclusion: “When government expenditures grow beyond the private sector’s ability to pay for them, economic growth suffers. Put simply, growth in government crowds out growth in the private sector. Nationwide, the burdens from total federal, state and local government expenditures have risen by more than 5 percent of GDP within the past two years — an extraordinarily high growth rate. These increased government expenditures will reduce private-sector growth and increase overall unemployment throughout the United States.”

PA Chamber members recognize the tremendous challenges ahead in the effort to restore the Commonwealth to fiscal and economic health. They are prepared to roll up their collective sleeves and work with state lawmakers to do what is needed to move Pennsylvania forward and ensure a prosperous private sector.

2010 ALEC-Laffer State Economic Competitiveness Index 10 best states:
Utah, Colorado, Arizona, South Dakota, Florida, Wyoming, Idaho, Virginia, Georgia and Tennessee

2010 ALEC-Laffer State Economic Competitiveness Index 10 worst states
Oregon, Ohio, Pennsylvania, Maine, Rhode Island, California, Illinois, New Jersey, Vermont and New York.

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Federal stimulus
Lawmakers are concerned about the certainty of federal stimulus money, which the governor is relying on to fund his proposed 2010-11 state budget. Budget Secretary Mary Soderberg said that the current allotment of federal stimulus money is set to expire on Dec. 31, but noted there has been vigorous discussion about continuing the Federal Medical Assistance Percentages (FMAP) funds for the next calendar year.

FMAPs are used to determine the amount of federal matching funds for state assistance payments for certain social services, and state medical and medical insurance expenditures. The Social Security Act requires the U.S. Secretary of Health and Human Services to calculate and publish the FMAPs each year.

Soderberg said President Barrack Obama has included two full quarters of FMAPs in his budget, for a total of $850 million. She also said 42 governors have signed a letter requesting a FMAP extension. Soderberg said most states have included these funds in their budgets and they are optimistic it will be passed. However, several lawmakers expressed concerns that the governor’s budget relies too much on federal funds that might not materialize.

Public pension crisis
In responding to questions about the looming public pension crisis, Soderberg said the administration is asking for an “incremental, predictable strategy” for funding the Commonwealth’s pension obligations. She said there will be a $3.5 billion increase in contributions in 2012, and the administration is asking for a $400 to $700 million contribution each year in order to lessen the burden in the next few fiscal years.

Some lawmakers pointed out that it doesn’t make sense for the Department of Education to ask for a $350 million increase in spending when none of it will be directed toward pension obligations.

Other lawmakers expressed concerns with the governor’s plan to address the pension crisis. The administration’s budget calls for several tax increases on business, the revenues of which would be placed into a reserve account to be used in 2011-12 to meet pension obligations. The PA Chamber believes focus should be placed on addressing some of the contributing factors that helped to create the funding crisis.

Film tax credit
During the Revenue Department hearing, House Appropriations Committee Minority Chairman Bill Adolph, R-Delaware, asked Acting Revenue Secretary Dan Hassell why the Film Tax Credit is proposed to increase at a time of economic downturn and when the Education Improvement Tax Credit is being decreased.

Hassell said the education tax credits were not reduced, but fixed in the October budget.

Adolph stressed that the education tax credit has been a successful program, and said he believes that with less money available for the program, more children will attend public schools, which will place a greater strain on the system.

Combined reporting
Lawmakers also inquired about the revenue that would be generated by adopting combined reporting. Hassell said combined reporting is estimated to generate $400 million to $500 million in revenue with the current base, but noted there could be other factors in proposed legislation that could change the exact amount of revenue generated. Hassell said he is aware of the business community’s concerns with combined reporting, and expressed his desire to work with the General Assembly to make combined reporting “as painless as possible.”

State Rep. Gordon Denlinger, R-Lancaster, said contrary to the governor’s argument, under combined reporting, 60 percent of corporations would still be non-taxpayers. He cited as reference at letter from former Revenue Secretary Thomas Wolf. Hassell said the number of non-taxpayers would go down, even if slightly. However, upon further questioning from Denlinger, Hassell said he did not have an updated list of active C-corporations in the Commonwealth.

Article courtesy of the Pennsylvania Chamber of Business & Industry

                          

The PA Chamber will be leading a contingent of business leaders to Washington, D.C. to participate in the event, which includes meetings with Pennsylvania’s Congressional delegation.

Members interested in attending should contact Sam Denisco at sdenisco@pachamber.org.

The program will kick off with an evening welcome reception with the delegations, followed by a breakfast program and congressional visits the following day.

With the status of the health-care reform debate in question and the Obama administration now focusing attention on job creation, there is concern that provisions of union card check legislation — binding arbitration in particular — may find their way into a comprehensive jobs bill.

Business needs to be prepared for attempts to advance the legislation in any form, and must make sure federal lawmakers continue to understand the implications of any proposal that hamstrings the ability of the private sector to effectively and efficiently operate.

                          

Taxes, followed by reduced spending and debt/budget concerns, ranked No. 2 and 3 on the list.

In the race for U.S. Senate, health-care was cited as the single most important issue, followed by economic issues, including employment and the federal stimulus.

The state economic forecast and ideas for job creation were also on the agenda for the House Appropriations Committee, which held a hearing on the topic this week in Harrisburg.

Jim Diffley of Global Insight, the state’s economic forecaster, predicted that the national economy will grow at 5 percent in the final quarter of the current fiscal year, but noted that Pennsylvania is not expected to return to previous peak employment levels until July 2012. He also noted that when recovery hits the Commonwealth, the state will be facing a public pension shortfall of $5 billion.

Private sector job creation is a priority for the PA Chamber and its members, as the private sector has suffered most in the recession.

In his economics and finance blog, University of Michigan School of Management professor Mark Perry notes that since private sector employment peaked at almost 116 million jobs in December 2007 at the onset of the recession, more than seven million private sector jobs have disappeared, while during the same time period government jobs increased by almost 100,000. Perry notes that the disproportionate adverse effect of the recession on the private sector can also be seen in differences in jobless rates between the private and public sectors.

The Chamber’s message to federal and state lawmakers is simple: job creation depends on American free enterprise, and the continued ability of the private sector to effectively and efficiently operate is the key to true and lasting economic recovery and job growth. To help deliver this message, the PA Chamber supports the U.S. Chamber’s “American Free Enterprise. Dream Big” campaign. For details on how you can bolster the campaign, visit http://www.freeenterprise.com/

                          

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.

                          

In a guest editorial that appeared in the Jan. 3, 2010 edition of the Harrisburg Patriot-News, the chamber urged state and federal lawmakers to proceed with caution in current policy debates, the outcomes of which could hinder the private sector’s ability to effectively and efficiently operate.

The full column is available here.

                          

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.

                          

As a member of the state’s UC Advisory Council, the PA Chamber continues to work on a plan to address the insolvency, but the process has reached a stalemate. The business community presented a responsible plan that includes some concessions from employers, and that also includes commonsense reforms that will help reduce future costs. However, organized labor has refused to make concessions of its own or agree to responsible improvements, such as requiring UC recipients to actively search for new employment.

Click here to read a previous article about the solvency concerns facing the Commonwealth                            ]]> http://blog.huntingdonchamber.com/2009/11/20/uc-borrowing-climbs-pa-chamber-continues-call-for-commonsense-reforms/feed/ 0