Over the past decade, Pennsylvania has enacted numerous corporate tax cuts, and the costs have skyrocketed, competing with state funding for schools, the state’s colleges and universities, early childhood education, and human services.
Laws to expand tax credit programs, change the way corporate taxes are assessed, reduce tax liabilities for merging mega banks, and eliminate the capital stock and franchise tax have drained a growing amount from the state treasury. The costs have more than tripled since 2003-04 from $850 million to just under $3.2 billion per year, as the Pennsylvania Budget and Policy Center documented in a new policy brief.
Over the past decade, Pennsylvania has enacted numerous corporate tax cuts, and the costs have skyrocketed, competing with state funding for schools, the state’s colleges and universities, early childhood education, and human services.
Laws to expand tax credit programs, change the way corporate taxes are assessed, reduce tax liabilities for merging mega banks, and eliminate the capital stock and franchise tax have drained a growing amount from the state treasury. The costs have more than tripled since 2003-04 from $850 million to just under $3.2 billion per year, as the Pennsylvania Budget and Policy Center documented in a new policy brief.
The most costly change is the phase out of the capital stock and franchise tax (CSFT), a process that began in 1998. It accounts for about two-thirds of the total tax cut bill.
Now Governor Tom Corbett has proposed a new round of tax cuts beginning in 2015 that will significantly reduce the state’s ability to pay for basic services. The largest piece of the Governor’s plan is to phase down the corporate net income tax (CNIT) rate from 9.99% to 6.99% between 2015 and 2025. The Governor’s proposal makes no attempt to close corporate tax loopholes, which allow some multi-state corporations to game our tax system and pay very little.
While the rate cut will be phased in over a decade, the cost will be immense. A 30% reduction in 2013-14 expected CNIT collections would cost $771 million.
More than half the states with corporate income taxes (23) have enacted combined reporting to close tax loopholes, and another 12 states have some form of an addback law that requires companies to add back interest, royalties and trademark expenses incurred with related companies.
Pennsylvania should follow their lead and take steps to close tax loopholes, improve accountability, and rein in corporate tax breaks. These proposals level the playing field for all businesses and make our tax system fairer.