Pennsylvania business leaders this week continued to push for a lower corporate net income tax (CNI) to be included in the upcoming negotiations over the new state budget.
The Pennsylvania Chamber of Business and Industry was joined by 45 local chambers from around the state in a May 24 letter urging the General Assembly to remain focused on the idea of cutting the CNI tax rate from its current 9.99 percent, one of the highest rates in the nation, as a means of encouraging businesses to invest in Pennsylvania.
“Pennsylvania’s excessively high CNI has always detracted investment, resulting in billions of dollars in lost revenue and driving companies and job opportunities to other states,” said PA Chamber President Gene Barr, who added that the reduction would be a “critical step toward improving the Commonwealth’s overall competitiveness.”
Reducing the tax is not a particularly controversial idea in Harrisburg this year.
The House this month passed a bill on a 195-8 vote that would lower the rate to 8.99 percent next year with provisions for an additional percentage-point reduction by 2025 if state revenues are sufficient. The bill, which is being considered by the Senate, also includes an increase in allowable net operating losses that companies may deduct to 45 percent with a pathway to a 50 percent tax deduction down the road. Republicans control both chambers of the state Legislature.
Democratic Gov. Tom Wolf’s proposed budget includes an immediate reduction to 7.99 percent with provisions for further reductions over a 5-year period. In a statement earlier this month, Wolf hailed the collection of a record $6.5 billion in General Fund revenues in April and said he wanted to use the windfall for statewide investments, including “reforms” to the CNI tax to improve the state’s competitiveness.
“Despite what you may hear from fiscal fearmongers, Pennsylvania’s financial future has never been brighter,” said Wolf. “We have a lot of money to work with for the 2022-23 budget, and I want to use that to take some pressure off of Pennsylvania families.”
Having a consensus in a state capital, however, can lead to a loss of focus and could potentially tempt Pennsylvania’s lawmakers to make a less-drastic cut to a revenue stream, which the combined chambers warned about in their letter to legislative leaders. “We ask that you help to move our economy in the right direction by supporting a material reduction in the CNI without demanding objectionable tax policy changes that would diminish the benefits of a rate reduction, such as ceding near-limitless subjective taxing authority to our Department of Revenue,” it said.
The letter also assured lawmakers that a lower CNI would produce a wide range of benefits for the entire state on its own by attracting companies to Pennsylvania, which would cause a ripple effect that would increase employment, wages and home values as well as the overall state GDP.
Pennsylvania, however, will remain at a disadvantage in attracting new industries to the state if the intention to cut the CNI tax, which hasn’t happened since 1995, falls apart during the budget negotiations, or if the Senate bill stalls.
Matt Smith, president of the Greater Pittsburgh Chamber of Commerce, said: “Ohio proactively markets that they have a zero percent state corporate income tax rate. In order to be competitive and put Southwestern Pennsylvania onto the radar of site selectors and job creators, we need to materially reduce our CNI tax rate without delay.”