Left behind in last week’s approval of the state budget are needed reforms to the business tax and regulatory structure that would help Pennsylvania take full advantage of an unrelenting surge in the nation’s economy. America just broke the record of 120 months of sustained growth thanks to the federal Tax Cuts and Jobs Act of 2017, and massive regulatory reform by the Trump Administration. Pennsylvania is missing out on opportunities, however, as businesses rush back into the country to invest in the substantially improved business climate.
“Trillions of investment dollars are coming onshore, but much of it is going to other states,” said PMA President & CEO David N. Taylor. “We would love to see the cooperative spirit that brought us a balanced budget on time carry over to the fall session and approve the changes we need to create even more jobs.”
The reforms would erase some ugly black marks against our Commonwealth for businesses looking to locate or expand here rather than in one of our competitor states. At the top of the list is the Corporate Net Income Tax rate that at 9.99 percent; the third highest in the country. Add this to the fact that we are one of only two states that caps losses a business can declare against income taxes. The ability to write-off losses is especially important to high-tech business investment and heavy industrial investment.
“The Tax Cuts and Jobs Act made it sensible for American businesses to reinvest in C-corp operations,” said PMA’s Vice President of Government Affairs Carl A. Marrara. “But that incoming C-corp investment is unlikely to come to Pennsylvania because of the way those investments are treated here compared to our competitor states.”
On the regulatory side, a package of reforms is primed and ready - bills borne out of horror stories of excessive, punishing regulations told to the sponsors of the legislation. State Senator Kristin Phillips Hill (R-York) and State Rep. Kate Klunk (R-York) have been leading the fight in their respective caucuses. Five of the seven bills in the package have already passed the Pennsylvania House and await action in the Senate. One of the bills that did not pass in the first attempt in the House was Representative Kate Klunk’s Office of the Repealer legislation.
“The Independent Office of the Repealer would ensure state government is functioning efficiently and effectively by reviewing existing acts and regulations,” Klunk said in an April press conference introducing the package of bills. “Though some of these laws and regulations have been on the books for years, sometimes decades, they have never been examined and evaluated for their relevance, appropriateness and cost. All too often, we, as legislators, receive complaints about the burdensome and, in some cases, repetitive regulations that stifle business growth.”
Meanwhile, the General Assembly approved, and Governor Wolf signed a $34 billion budget. Lawmakers and the governor were beneficiaries of an across-the-board jump in tax receipts over the prior fiscal year. Sales tax returns were up over seven percent, personal income tax receipts were nearly six percent higher, and corporate net income tax returns were up over 20 percent. Though the returns were higher, compared to other states, the growth was below average.
The budget contained some highlights including: enhanced funding for Pennsylvania’s top job-training programs at Thaddeus Stevens College of Technology, the Pennsylvania College of Technology, and career and technical schools; the needed return of depositing money in the state’s Rainy Day Fund; and increases in hosts of various programs outlined by Senate Republicans in a video.
At the same time, GOP lawmakers had to act as the firewall - yet again - to new and increased taxes on Pennsylvania energy, a push to have taxpayers bail out the nuclear industry, and an increase in the state’s government-mandated wages.
Republican Leaders were right to note that the tough decisions made by their caucuses in past budget years paid dividends this year.
“When the House Republican Caucus regained the majority following the 2010 election, we set forth a vision focused on growing the economy to provide private sector, family-sustaining jobs,” House Speaker Mike Turzai (R-Allegheny) said in a statement. “We also knew that we had to provide important investments in education and services for our most vulnerable – like those individuals with disabilities – while still respecting the hard-working families paying taxes.”
Senate Pro Tempore Joe Scarnati (R-Jefferson) likewise cited past budget years in a statement on the approval of the budget.
“Our fiscally responsible budgeting over the past years has helped to foster a stronger economy and has even allowed us to save $300 million in the rainy day fund this year. Taxpayers and families set aside money for tough times, and it’s the responsible thing for the state to do as well,” Scarnati said.
The growth the leaders referred to has been remarkable. Pennsylvania’s unemployment rate has declined from 7.9% in January of 2011 to 3.8%, the lowest rate since state-level records began in 1976. The state’s Gross Domestic Product (GDP) has grown from $599 billion in 2010 to $789 billion in 2018, a 15% increase in real GDP, with near zero growth in population.
The numbers can get even better. House members are scheduled to be back September 17, 2019; Senate members September 23. Tax and regulatory reform bills will be ready and waiting.