Pennsylvania has much to offer new and existing businesses. The Commonwealth boosts major east/west and north/south transportation corridors, a skilled work force, world-class educational facilities, and a governor committed to making Pennsylvania more conducive to business growth and job creation, to name a few.
But considerable red flags remain in the competitiveness race. Overall, Pennsylvania has the highest tax burden of all 50 states, and its high corporate tax rate makes Pennsylvania among the worst for new businesses. When combined with the federal rate, Pennsylvania has the highest corporate tax rate in the world. And Pennsylvania is the only state that has a Corporate Net Income tax and a tax on assets, which must be paid regardless of whether or not a company earned money.
Unfortunately, these red flags mean little to the "tax more/spend more" crowd, who only view job creators as a limitless stream of revenue for the state’s General Fund. This is most evident in their current campaign of misleading rhetoric about the tax liability of Pennsylvania businesses.
The rhetoric is tied to the current debate about preventing corporations from utilizing a passive investment strategy – or, in frequently used but not necessarily accurate terms – "the so-called Delaware loophole."
For starters, the purposeful use of the word "loophole" is misleading. Employing a passive investment strategy is a legitimate and allowable tax planning tool that businesses use much for the same reasons as individual taxpayers claiming mortgage interest and other allowable deductions in order to reduce their tax burden. The state Department of Revenue has the authority to go after true abuses, and it has exercised that authority in recent history.
Then there is this often repeated phrase: "70 percent of businesses" don’t pay taxes. This is wrong, as most businesses in the state are smaller businesses that pay the Personal Income tax, not the CNI. Those making that statement mean corporations, of course, but if they clarified that point, they’d also clarify that the 70 percent figure includes companies that did not make a profit or lost money, and therefore have no tax liability. They might also then point out the host of other taxes these companies pay to the state, and perhaps their most important economic contributions – jobs for Pennsylvanians.
It’s much easier, however, to claim that businesses aren’t paying enough taxes. But it is important to stress that proposals designed to take more revenue from job creators, particularly proposals that seek to do so while delaying necessary reductions that would boost the state’s competitiveness, have the potential to cause more economic harm than good if not carefully vetted.
Creating, not further eroding, a business tax climate that encourages business growth and job creation is critical. With a signed agreement in place for the evaluation of a preferred Pennsylvania site for a world-scale petrochemical complex – what could be the biggest jobs boom in that region this generation – now is not the time to take action that could potentially hurt the economic viability of a project being heavily courted by many neighboring states. After all, it is the private sector that will drive true recovery, grow the economy and provide jobs for Pennsylvanians. If more viewed business in this light, there would be no need for misleading rhetoric and misinformation to drive the tax policy debate.
Guest columnist Sam Denisco is vice president of Government Affairs for the Pennsylvania Chamber of Business and Industry.
The views expressed here are those of the author and not necessarily those of The Susquehanna Valley Center.
Nothing presented here should be considered as an attempt to aid or hinder the passage of any legislation before the General Assembly.
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