I am testifying before the Pennsylvania House Finance Committee today on Governor Tom Corbett’s plan to cut the state’s corporate net income tax rate by 30% over a decade. This tax cut, along with a number of other tax policy changes, will cost the commonwealth—conservatively—more than $800 million annually when fully phased in.
The new round of tax cuts come after two years of significant budget cuts and at a time when the Commonwealth is having difficulty meeting its current obligations. It comes on top of 12 years of tax cuts whose value has reached more than $3 billion annually. This includes the final year of the capital stock and franchise tax phase-out, which will drain more than $300 million in the current fiscal year.
State tax revenue collections for 2012-13 are not meeting expectations. The current year surplus that forms the foundation for next year’s state budget is dwindling, leaving a potential budget gap. Pension costs will rise over the next few years regardless of whether changes sought by the Corbett administration are enacted, putting added pressure on the budget. Long-delayed transportation infrastructure projects and public transit programs will vie for scarce dollars.
While state tax reform would be welcome, this plan falls far short of that goal. It makes modest changes to improve tax enforcement but avoids addressing corporate tax loopholes. Legislation that took steps to close the Delaware loophole passed the House last year, indicating growing support for leveling the playing field for Pennsylvania businesses.
Governor Corbett’s tax cut proposal will cost hundreds of millions of dollars—shortchanging the schools, colleges, health care, and infrastructure that are absolutely necessary for our economy to grow. Pennsylvania can ill afford a new round of corporate tax cuts.
For a more detailed analysis of the Governor’s tax cut plan, check out my memo to the media.