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On Tuesday, Oct. 6, the state Senate passed a $27.834 billion state budget for the 2009-10 fiscal year.

While not perfect, the proposed budget reflects today's economic realities by requiring state government to live within its means.

"We are obviously disappointed that the tentative budget would increase the Capital Stock and Franchise tax," said PA Chamber President Floyd Warner.

Under the proposal, the CSFT would revert back to 2008 level of 2.89 mills retroactive to Jan. 1, 2009. The 2.89 rate would be effective through 2011. The change would amount to $373.9 million this fiscal year and $550.6 million in 2010-11.

The budget would include some additional progress on two of the unified business community's top business tax priorities. It would increase the cap on Net Operating Loss Carryforwards from $3 million or 12.5 percent of taxable income to $3 million or 15 percent in 2009 and $3 million or 20 percent through 2013; and would change the Corporate Net Income tax apportionment formula from 70 percent sales, 15 percent property and 15 percent payroll to 85 percent sales, 7.5 percent property and 7.5 percent payroll. The formula would then become 90 percent/5 percent/5 percent in 2010-11.

Warner said lawmakers from both sides of the aisle recognize the value of these tax changes to the Commonwealth's overall job creation and economic growth efforts.

And unlike 1991, when a $1.2 billion revenue deficit required a multi-billion dollar tax hike primarily on the backs of business in order to pass the budget, this budget proposes to spend less than the prior fiscal year.

"Pennsylvania Chamber members have said all along that just as businesses and families have done, government too must tighten its belt in these difficult economic times," Warner said.

The Senate-passed budget would reject a natural gas severance tax contained in a spending plan (H.B. 1416) that narrowly passed the House on Friday, Oct. 2. The PA Chamber opposes such a tax on natural gas extracted from the Marcellus Shale out of concern that it could endanger the efficient development and job creation potential of that industry.

The Senate budget also excludes a 2 percent broad-based tax on all health insurance plans in the Commonwealth, which would have increased the cost of health care. It would instead extend the Gross Receipts Tax to Medicaid MCOs, thereby adhering to federal guidelines for the purposes of drawing down federal funds.

The Senate budget also excludes an increase in the Personal Income Tax initially favored by the Rendell administration.

Meanwhile, House Democratic leaders this week pulled out of the Conference Committee a similar budget proposal – but different from the plan that narrowly passed the House on Friday, Oct. 2 – and intend to move it from the Rules Committee, possibly today, so that it can be brought up for a vote.