When the layers of Governor Tom Wolf’s latest budget proposal are peeled away during the legislative budget hearings that begin next week, Pennsylvanians will see a rogues gallery of job-killing tax increases from across the decades – some defeated, some repealed – back to haunt our economy.
“You can repackage it any way you like,” said PMA President David N. Taylor, “but Governor Wolf’s tax agenda is the same set of bad ideas he’s been pushing since his days in the Rendell Administration. For example, the computer-services tax has been dead and buried for more than a decade, so resurrecting it now tells the world ‘progress is never permanent in Pennsylvania.’ Breaking free from the dead end of past failures is the only way to build a better future for our citizens and our commonwealth.”
Taylor said tax policy should focus on how to foster economic growth, which would in turn generate the tax revenues required to fund public needs.
“Instead of encouraging growth, however, the governor seems intent on forfeiting the future by worsening Pennsylvania’s business tax climate, disadvantaging energy development, and increasing spending while revenues continue to fall,” he said.
Nearly half of Wolf’s billion-dollar business tax increase would come from reducing or eliminating tax credits and deductions that benefit employers. “You know that an honest discussion is not an offer when the term ‘loophole’ is used,” Taylor said, “because there is no such term in law. Instead, ‘loophole’ is an all-purpose insult deployed against a provision of the law that someone else doesn’t like.”
Prominent among Wolf’s reanimated plans to expand government and kill jobs:
- Expanding the state sales tax to computer services
Revisiting one of the tax increases in the disastrous 1991 budget, Gov. Wolf wants to apply the state sales tax to computer services. The Casey-era hike was repealed years later by Gov. Tom Ridge. Obviously, this tax increase would increase costs for everyone who relies on computers, especially smaller businesses that don’t have their own information technology staffs.
- Limiting net operating loss carryforward
While 48 states allow businesses to apply 100% of past losses to current and near-future tax liability, Wolf wants to cap Pennsylvania at 30%. This “net operating loss carryforward” (NOL) discrepancy makes it harder to attract investment to Pennsylvania and is especially burdensome for start-up ventures and for cyclical industries like metals manufacturers. We should uncap NOL completely, not lock in a permanent disadvantage.
- Imposing mandatory unitary combined reporting
Wolf seeks to eliminate transparency and predictability in tax compliance by instituting “mandatory unitary combined reporting” to give the PA Department of Revenue the power to impose PA tax liability on businesses’ operations in other states. Of course, because all 50 states have their own systems of state taxation with their own rates, definitions, and tests of applicability, there can never be a true apples-to-apples comparison, which will make every encounter with the Department of Revenue a negotiation over how it will treat your business out-of-state operations. Because the Department has an institutional bias to maximize collections to the state Treasury, this will force many more tax cases to be disputed, tying them up in court for years, leaving the funds equally unavailable for productive business investment or for spending by government. California is still litigating combined reporting cases from the 1980s.
The worst irony is that, after increasing the costs of compliance and subjecting everyone to lengthy delays, combined reporting will not yield greater tax collections because Pennsylvania already has “expense add-back provisions” to disallow fraudulent deductions. “The whole thing is a Snipe Hunt,” Taylor said. “There is no pot of Leprechaun gold. There are no Magic Beans. The best way for government to collect more tax revenue is for the economy to grow. The governor could help make that happen by giving up these tax-windfall fantasies and working to lower the baseline costs of creating and keeping jobs in the commonwealth. In particular, limiting lawsuit abuse and reducing the regulatory burden would help job-creators while not lowering tax collections by one red cent.”
- Enacting new, higher taxes on Pennsylvania energy
A new tax on energy IS a broad based tax on all Pennsylvanians. Tragically, Wolf continues to call for new, additional taxes on Pennsylvania natural gas development on top of the existing Impact Fee and Pennsylvania’s highest-in-the-nation Corporate Net Income Tax. Even as domestic energy production is beginning to reawaken following the Saudi price war, Wolf is telling potential investors to go to Ohio or West Virginia. “Half of all Pennsylvania homes are heated with natural gas, so how is an additional tax on natural gas production not a ‘broad-based tax’,” Taylor asked. “If Harrisburg embraces a pro-production agenda, Pennsylvania energy production can be the key competitive advantage that brings jobs back from overseas. The petrochemical manufacturing industry that is waiting to be born will deliver even more economic dynamism than we have seen thus far from the drilling. The potential benefits to all consumers – industrial, commercial, and residential – are astonishing. But we will miss out on that if government greed prevents the sector from maturing. As PMA has said for many years now, hard-hat Democrats and pro-business Republicans must join together to support a pro-production agenda for energy that will maximize domestic production, build out infrastructure to connect that production to consumers, and help usher in a new century of prosperity for our commonwealth.”
The House and Senate Appropriations Committees are scheduled to conclude their budget hearings in March. House members are then scheduled to return to session on Monday, March 13 and Senate members on Monday, March 20. Lawmakers will then have until June 30 to send the governor a spending plan covering FY 2017-18. A budget that fails to address the public pension crisis and the other spending cost-drivers will only drag Pennsylvania backward.