Pennsylvania’s Corporate Benefits are an Economic Flop
Just before the end of the legislative season, Pennsylvania lawmakers passed a package of tax credits that will, over time, dole out $2 billion in corporate welfare to select businesses.
Favoring politically connected corporations and industries at the expense of broader tax reform isn’t new. For years, Pennsylvania has led the nation in corporate welfare, even though these handouts have done little to improve the state’s economy or business climate.
Pennsylvania businesses face real challenges — including an unfriendly business climate, excessive regulatory red tape, inability to get permits and timely approval from state agencies, and hostile labor laws. Yet, instead of fixing the structural problems that inhibit economic development and business growth, Pennsylvania politicians have consistently tried to patch things over with tax breaks, taxpayer-funded handouts, and other gifts to select corporations.
Unfortunately, corporate welfare doesn’t lead to sustainable economic growth. These subsidies provide only short-term boosts for select businesses with effective lobbyists and political connections.
For example, Sony moved out of our commonwealth back in 2007 despite getting over $40 million in corporate welfare to come to Pennsylvania. Before Sony, Volkswagen received $70 million in incentives to set up shop — at the same location — before abandoning it 10 years later.
This story is far too commonplace. A 2018 meta-analysis found that government incentives had little impact in 75% to 98% of cases involving a firm’s decision to relocate, expand, or retain jobs.
Despite spending billions of dollars in corporate welfare over the years, Pennsylvania continues to lag the nation in key economic indicators. According to American Legislative Exchange Council’s 2022 State Economic Competitiveness Index, Pennsylvania ranks 45th in the nation for economic performance.
As of September 2022, the Commonwealth has the seventh highest unemployment rate at 4.1%. While twenty-three states have fully recovered pandemic-era job losses, Pennsylvania is still down more than 97,000 payroll jobs from February 2020.
Our commonwealth continues to lose business, jobs, and residents to more competitive states. Over the last decade, Pennsylvania has lost more than 250,000 residents in interstate migration.
Nonetheless, we have the potential to lead the Northeast — and even the country — in economic growth by implementing transformative reform that makes our state more competitive and more attractive to families and employers. Instead of favoring select corporations and industries with taxpayer handouts, state lawmakers should help all businesses through meaningful tax and regulatory reform.
While recently-enacted legislation will reduce Pennsylvania’s corporate tax rate — which was second-highest in the nation — over ten years, Pennsylvania still ranks only 33rd in the nation for its business tax climate. Both Republicans and Democrats have called for an accelerated corporate tax reduction to hasten our economic recovery and make Pennsylvania a destination state. Likewise, Pennsylvanians need relief from the over 164,000 regulations on the books, which inhibit the ability of businesses to open and hire workers.
But handouts for select companies make both of these, changes that would benefit all business, more difficult.
Many employers, especially those in the energy sector, point to regulatory burdens as a key barrier preventing them from expanding, pushing them to other states, and driving up energy rates borne by Pennsylvania consumers.
This legislative session, the Pennsylvania House passed bills that would have required legislative approval for any significant regulation, increased transparency for business permits, required regular review of existing regulations, and provided for repealing regulation. The state Senate passed bills that would have required regular review for significant regulations and provided more legislative oversight for the regulatory process.
None of these bills made it to the governor’s desk. While lawmakers rushed through a corporate welfare package that benefits some businesses, they let transformative policy reforms languish in committee.
Pennsylvania lawmakers need to take a new approach: eschew corporate welfare, cut the red tape, and reduce business tax rates. Shifting from one-time band-aids to long-term solutions will revitalize our commonwealth, release Pennsylvania energy to power the world, unleash prosperity, and enable all Pennsylvanians to flourish.
Nathan Benefield is the Senior Vice President of the Commonwealth Foundation.
