Are Pennsylvania Corporate Tax Rates Too High?

May 14, 2012

Many business leaders believe Pennsylvania's regulatory and tax policies make it a poor place to do business, according to a survey of 650 CEOs across America.

A recent survey shows Pennsylvania scored fairly well in the "Workforce Quality" and "Living Environment" categories, but lagged badly in the "Taxation and Regulations" section.

"Pennsylvania has numerous, piddly taxes it is regulation heavy even for very small 1-2 person businesses," read one anonymous CEO's comment.

The small-government policy group Citizens Alliance of Pennsylvania pointed to the survey as proof of a bloated state government that interferes with business.

CAP Executive Director Leo Knepper said Pennsylvania fell by four rankings since 2011, despite a "supposedly pro-business" Republican governor and GOP majorities in the state legislature.

"There hasn't been anything done to reduce regulatory red tape," said Knepper. "They put a new tax on the only growing segment of Pennsylvania's economy — that's the energy sector. It's not a particularly good record at this point."

However, the left-leaning Pennsylvania Budget and Policy Center criticized the CEO survey as an "opinion piece." PennBPC's Mike Wood said he thinks the survey shows that maximizing corporate profits isn't in the best interest of Pennsylvania.

"If you look at the states that do really well in [the survey], they seem to be states that have really low per capita incomes, really high poverty rates, and in the case of Texas — who's number one in the survey — they have the highest rate of uninsured citizens in the United States," said Wood.

Both Sides Criticize Bill to Lower Corporate Tax

A bill to lower the corporate income tax recently passed the House, but Knepper said the legislation is "neutral at best" because it would take six years to ease the tax down from 9.99% to 6.99%.

Knepper said reducing tax burdens now would make the Commonwealth more attractive to businesses.

"We have the second-highest corporate net income tax rate in the country," said Knepper. "We have the highest marginal corporate income tax in the country when you include the Corporate Stock & Franchise Tax. I think we're one of only a handful of states that even has anything like that anymore."

On the other hand, Wood said he appreciates the bill's attempt to close the "Delaware Loophole," a regulatory void that allows Pennsylvania companies to shift some operations to lower-tax states. However, Wood said HB 2150 would cost too much.

"For every dollar it brings in in corporate taxes from closing loopholes, it gives away three dollars in corporate tax cuts," said Wood. "Every time we cut corporate taxes, that means we're going to have fewer dollars to be able to spend on our education, healthcare, and our infrastructure."

HB 2150 passed the House in early May, but Governor Tom Corbett said he's concerned the bill could prevent Pennsylvania from balancing its budget.