Business group offers tax ideas
Report claims changes could improve state’s tax structure, economy
HARRISBURG — With it being an election year, talk of anything related to tax changes — other than not raising them — has been fairly absent from serious policy discussions the last few months.
That might change in January when a new state Legislature begins session with either the same governor or a new one.
“Our tax structure is a ‘top of mind’ issue to business executives when focusing on making decisions such as job creation and retention, siting of locations and various investments made in the commonwealth,” said Sam Denisco, vice president of government affairs for the Pennsylvania Chamber of Business and Industry. “Simply stated, a state with lower tax costs will be more attractive to business investment and more likely to experience economic growth.”
Denisco argued that, with the state’s businesses already experiencing positive impacts from the federal tax reform, now is a good time for Pennsylvania to build on those positives.
He acknowledged Pennsylvania has made some improvements to the state’s tax structure during the past decade — such as the completed phase-out of the Capital Stock and Franchise Tax, implementation of a single-sales factor to compute the Corporate Net Income Tax and some incremental advances regarding how business can carry forward their net operating losses.
“However, other states in the United States have made more significant improvements to their tax structure, mainly focusing on (tax) rates,” Denisco added.
“As a result, our tax structure here in Pennsylvania — which includes a very high CNIT rate of 9.99 percent — continues to impede our competitiveness; in fact, the Tax Foundation, in their 2018 Business State Tax Climate Index, has Pennsylvania as the seventh-worst corporate income tax structure in the nation, and that’s a problem,” Denisco said.
Acknowledging Gov. Tom Wolf has suggested a phased-in CNIT reduction, Denisco explained that offer from Wolf has always been tied to policy changes seen by the chamber as punitive to business, such as combined reporting.
The Tax Foundation report found Pennsylvania’s business tax climate ranks 26th in the nation. Ranking for neighboring states were Delaware, 15th; West Virginia, 19th; Maryland, 43rd; Ohio, 45th; New York, 49th; and New Jersey, 50th.
Hodgepodge of taxes
Jared Walczak, a senior policy analyst for the Tax Foundation, described Pennsylvania’s tax structure as a hodgepodge “that probably made sense individually, but when put together, over time, create a somewhat anachronistic tax code, one that has not kept pace with a modern economy or with modern forms of taxation.”
The report makes a variety of recommendations:
– Phase out the state’s cap on net operating losses. Pennsylvania is one of two states with a cap on the amount of net operating losses that can be claimed in a given year.
– Reduce Pennsylvania’s CNIT rate from 9.99 percent to 6.99 percent or lower.
– Cut back and potentially eliminate the state’s CNIT credits, which have a net cost of the state.
– Eliminate the state’s practice of dividing income into eight classes for the Personal Income Tax.
– Eliminate most, if not all, business credits that can be claimed by pass-through businesses against PIT liability.
– Consider taxing retirement income, or at least a portion of it. The current exemption — which Walczak said is fairly generous — costs the state an estimated $3.4 billion annually.
– Broaden the sales tax base (while reforming the current taxation of services that are business inputs), with additional revenues to be used to reduce the overall sales tax rate.
– Broaden Pennsylvania’s local earned income tax base to share the same base as the state PIT, with any additional revenue being used to reduce/eliminate business gross receipts taxes and local nuisance taxes.
– Consolidate local tax collection at the county level.
– Implement a mandatory property tax assessment cycle for all counties.
– Repeal the state’s inheritance tax.
Not everyone agrees with the plan.
“The Chamber of Commerce tax proposal is the Pennsylvania equivalent of Trump’s federal tax plan,” said Marc Stier, the director of the liberal-leaning Pennsylvania Budget and Policy Center. “It would put more of the tax burden on working- and middle-class Pennsylvanians while reducing taxes for the rich and corporations.”
Stier argues the resulting tax system leads to reduced revenue growth and, over time, “state revenues won’t be able to keep up with population growth.”
Stier said a true “business-friendly” tax structure would be one that encourages consumption, “because what businesses most need is for people to buy their products.”
“The current tax structure taxes consumers of moderate income more heavily than the 1 percent who save a lot of their income,” said Stier. “We’re reducing consumption in this state.”