OP-ED: Lowering state Corporate Net Income Tax is the right move
In recent months, I have had several opportunities to hear our governor speak about his vision for Pennsylvania. One particular proposal has captured my interest so much that I felt compelled to dig deeper to broaden my understanding.
The Wolf administration's proposal to reduce the state's Corporate Net Income Tax (CNIT) rate from 9.99 percent to 4.99 percent by 2018 has been greeted with skepticism by some. Perhaps the boldness of this proposal has caught some off guard or our resistance to change has created a natural impediment to objectively evaluating the merits of such an approach.
For many years, the York County Chamber of Commerce, and now the York County Economic Alliance (YCEA), have strongly advocated for a reduction in the CNIT. We haven't been alone on this issue. In fact, in 2004 the Business Tax Reform Commission for the state recommended lowering the CNIT to 6.99 percent. More recent studies have made similar recommendations.
Why hasn't this happened? There are probably many answers to that question, but one obvious challenge that arises is how to replace the potential reduction in revenue.
A number of the members of the state General Assembly were concerned enough about the state's corporate tax base and its erosion that they requested the state's Independent Fiscal Office (IFO) to analyze some potential policies that could help expand the corporate base. The IFO was created as a non-partisan entity to provide impartial and timely analysis of fiscal, economic and budgetary issues to assist Commonwealth residents and the General Assembly in evaluation of policy decisions.
The analysis and subsequent report delivered in 2013 uncovered that the state's corporate tax base growth has lagged behind the state's economic growth for many years. The 67 pages of the report are filled with a lot of statistics, data, charts and explanations. Some of the key findings reinforced things I already knew, but also enhanced my understanding of other factors where I lacked knowledge.
Pennsylvania's high CNIT encourages firms to shift income to low tax or no tax states and sends the negative message that we're not a business friendly state. That part I knew and understood. What I was uncertain about was the potential effects of mandating combined reporting. The report states that combined reporting has statistically significant positive impacts on state revenues.
For the General Assembly members who were/are concerned about erosion of the state's corporate tax base, this should come as welcome news. In recent years, more and more states have moved toward combined reporting in efforts to achieve a balance that promotes economic growth and sound governmental fiscal policy.
While YCEA has not taken a formal position on combined reporting, my review of the IFO's 2013 special report on corporate tax base erosion makes it clear to me that Gov. Tom Wolf's proposal to reduce the CNIT with combined reporting has merit and should be debated in earnest. As budget discussions continue, I would encourage our leadership in Harrisburg to thoroughly examine the findings of the IFO to assist them in making informed policy decisions.
— Darrell W. Auterson is president and CEO of York County Economic Alliance