High Business Taxes Means PA Could Struggle When Recession Hits

(The Center Square) – Pennsylvania lawmakers patted themselves on the back for lowering a corporate income tax, but a recent ranking shows the state’s business taxes are still a burden for businesses.

An annual ranking of state business tax climates by the Tax Foundation placed Pennsylvania at 33rd overall, echoing other economics rankings that show the state below average nationally and slipping one spot compared to last year’s rankings.

While the state lowered the corporate net income tax in its latest budget, as The Center Square previously reported, tax issues remain. The state’s sales tax is relatively low, but it has a narrow base and local sales taxes also push up how much the median Pennsylvanian pays.

The business tax climate ranking comes from a comparison of corporate taxes, individual taxes, sales taxes, property taxes, and unemployment insurance taxes, the Tax Foundation noted. Sales and property taxes were where Pennsylvania did best, coming in 16th place for both. Its worst showing was for corporate taxes, ranking 42nd, while the state was 20th for individual taxes and 22nd for unemployment insurance taxes.

A repeating trend for regional competition was apparent: Pennsylvania generally does better than its neighbors in the Northeast while trailing behind states in the South and West. Only Delaware and West Virginia had a better business tax climate (16th and 20th, respectively), while Ohio came in a few spots behind Pennsylvania at 37th.

Wyoming, South Dakota, Alaska, Florida, and Montana held the top spots, while Connecticut, California, the District of Columbia, New York, and New Jersey were the bottom of the barrel.

The trouble with a difficult business tax environment is that businesses struggle to grow and entrepreneurs tend to start fewer businesses.

The Independent Fiscal Office has estimated the chance of a recession in Pennsylvania at 60%, as The Center Square previously reported. And a recent report from Moody’s warns that “State governments are at a crucial juncture.”

“Two years of rapid, stimulus fueled growth are quickly coming to a close and the specter of another recession is beginning to take shape. While a recession in the coming year is still far from certain, recessions and their place in the business cycle are a fact of life. Therefore, preparing for recessions is an equally inescapable concept, with potentially devastating consequences for those who treat it as an afterthought,” the Moody’s report noted.

The Moody’s report “stress-tested” every state for how its finances could handle a recession and found that Pennsylvania would have a tax revenue shortfall of 11.3%, about $4.5 billion, close to the national average of 12%. Pennsylvania was also one of seven states Moody’s noted could have at least a 5% revenue shortfall.

Anthony Hennen

Staff Reporter

Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.