Taxing Business Won’t Save Students

Member Group : Commonwealth Foundation

SunnySide Supply, a safety equipment business in Washington County, is growing by leaps and bounds thanks to Marcellus Shale development. Today, SunnySide employs 15 workers;up from five in 2008;and owner Paul Battista is proud of the
well-paying jobs he provides. Paul told a Congressional subcommittee last year:
We can now pay a higher family-sustaining wage! We have people working for us
that are the primary breadwinners of their household."

But each year, Paul’s family business;and that of countless job
creators is threatened by efforts to bolster school funding by raising
business taxes.

Last month, government union executives endorsed a budget plan with more than $1
billion in business tax hikes. These tax proponents wanted to raise the Capital
Stock and Franchise Tax and end the vendor discount for businesses that collect
sales tax, meaning retailers would no longer be compensated for collecting a
convoluted tax with numerous exemptions.

Next, they touted the slogan, “close the Delaware loophole!” which would force a multi-state company to submit returns from all their national and
international operations and subsidiaries—rather than just their Pennsylvania operations to the state Department of Revenue.

The plan also tacked on a 5 percent natural gas severance tax to the current impact fee and all the other business taxes which are paid by the gas drilling industry.

According to Pennsylvania State Education Association President Michael Crossey,
This is a fair [natural gas] tax, a wise investment that our students
need. There is a funding crisis in our public schools.

Teachers union lobbyists are focused on protecting the status quo and asking
the natural gas industry—and through them job creators like Paul
Battista to foot the bill. Instead, we should be putting students first by
focusing on tangible ways to provide local districts some budget relief.

How? Fair pension reform, teacher seniority reform, a funding formula based on
current students, and mandate relief would alleviate most school budget pressures.

The truth is, Pennsylvania businesses already face the second-highest corporate tax burden in the nation. Additional taxes could reduce production, encourage layoffs, squelch business investment, or even convince a company to relocate.

Further, history has shown that simply throwing more money at schools won’t
help our struggling students.

Today, public education revenue is at an all-time high;$25.6 billion from
local, state, and federal sources. That’s even higher than years when state tax dollars were supplemented with temporary federal stimulus funds.

School districts even added more than $480 million to their burgeoning reserve funds last year, which now total nearly $4 billion. And despite claims of underfunding, Pennsylvania ranks 10th in the nation in education spending per student.

Even with record-high education spending, the National Assessment of Educational
Progress shows nearly three in five Pennsylvania 8th grade students aren’t
meeting proficiency levels in reading and math. In Philadelphia, only 20 to 30
percent of students can read or do math at grade level.

Clearly Pennsylvania has an education crisis that more money alone cannot fix.
Instead, lawmakers should look to a proven solution: expanded school choice.

Schools of choice have become increasingly popular because they provide better and safer options for families. In fact, 11 out of 12 gold standard studies found school choice improved academic outcomes for participants.

School choice already saves Pennsylvania taxpayers millions of dollars each year.

Public charter schools and cyber charter schools educate children for a fraction of the per pupil cost of district schools. Plus programs like the Educational Improvement Tax Credit (EITC) save taxpayers millions.

If each of the 60,000 students receiving an EITC scholarship in 2012-13 returned to their district schools, those schools would need $892 million in new revenue to handle the additional enrollment.

New business taxes, such as a severance tax, will not solve our public school
performance problems, but it will mean fewer opportunities for Paul Battista and
other small business owners to provide family-sustaining jobs. Our children need
both quality education and plentiful job opportunities to succeed in life.
Increasing taxes to fund the education status quo fails on both counts.

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Elizabeth Stelle is a senior policy analyst for the Commonwealth Foundation
(, Pennsylvania’s free market think tank.