Dick Yuengling, Jr., owner and president of Pottsville-based Yuengling Brewery, the oldest and now largest brewer of beer in the nation, raised eyebrows recently when he told the Harrisburg Patriot News that the company is not likely to build its next brewery in Penn’s Woods because the state is "not very business-friendly."
If Mr. Yuengling is looking for a state with a better business climate than Pennsylvania, he has eighteen other states from which to choose. That’s according to the Tax Foundation which has just released its annual ranking of state business climates. Pennsylvania is number 19 on the list and has shown some modest improvement over the past year.
The Tax Foundation ranks states relative to each other and includes some 100 factors which are distilled to a single ranking. Thus, the states compete against each other for top honors. Speaking of which, Wyoming is credited with having the most business-friendly tax policies in the nation followed by South Dakota, Nevada, Alaska, Florida, Washington, New Hampshire, Montana, Texas and Utah. The Empire State, New York, brings up the rear sporting the worst business climate in the country followed by New Jersey, California, Vermont, Rhode Island, Minnesota, North Carolina, Wisconsin, Iowa and Maryland.
According to the Tax Foundation, the per capita tax burden for state and local taxes in Pennsylvania is $4,190.00. The average Pennsylvanian works until April 18th to pay his or her share of federal, state and local taxes. That means we work almost a third of the year just to support government.
Meanwhile, back at the brewery, the nation’s top beer executive pointed to uncertainty as part of the difficulty in doing business in Pennsylvania. Yuengling told the Patriot-News he can never be certain which way the state is leaning in terms of its tax and business policies. Uncertainty is a familiar refrain among business CEOs and owners. Federal tax policy, and in recent years health care policies, have injected considerable uncertainty into the nation’s business climate. CEOs therefore look to the states for some stability, and Pennsylvania has lacked that attribute. In part, this has been driven by the eight year partisan gubernatorial cycle which has seen the chief executive’s office switch from Republican to Democratic control every eight years since the inception of the two-term governorship back in the 1970s.
Most recently, former Governor Ed Rendell presided over a dramatic expansion of state spending that was financed in large measure by delaying the phase-out of certain business taxes, and a massive increase in state borrowing. The former governor also fought hard to enact new taxes on Marcellus Shale drillers, seeking to penalize that industry’s success and sending a message to other industries that if you do well expect the state to come after you for more than your fair share of taxes.
The return to power of a Republican Administration has begun to turn the tide of the state’s business climate. Governor Tom Corbett recently merited an "A" from the CATO Institute and was cited as one of the best governors in the county on business issues. This was largely based on Corbett’s resumption of the phase-out of the Capital Stock & Franchise Tax, an arcane tax that CATO points out costs businesses some $600 million annually. Pennsylvania is the only state in the nation to levy both a CSFT and a Corporate Net Income Tax, essentially double-taxing business. It is slated for phase-out entirely by 2014. Corbett also stood his ground by opposing a severance tax on companies drilling in the Marcellus Shale region. An impact tax was enacted, but the tax was far less than what had been proposed during the Rendell Administration.
And so the inconsistency continues, although from the perspective of business the pendulum is now swinging back in the right direction. Two consecutive years of no-tax hike budgets that have actually cut state spending has also helped place Pennsylvania on more sound footing. But, a looming crisis in pension funding, plus deficits in the state’s unemployment compensation fund and growing transportation infrastructure needs remain storm clouds on the horizon.
If Pennsylvania is to remain competitive when it comes to convincing companies such as Yuengling to expand or locate here the current course of improving Pennsylvania’s business climate must continue. Our tax structure must be made more competitive, and we must be able to provide companies with more stability and predictability when it comes to state tax policies.
(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])
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