Accelerating the CNI Phase Down
The PA Chamber saw a major tax reform goal realized last session through the enactment of Act 53 of 2022. This historic reform included the reduction of Pennsylvania’s uncompetitive Corporate Net Income Tax which, at 9.99 percent, was the second-highest in the nation. Now at 8.99 percent, PA’s CNI is set to be phased down gradually each year until the rate reaches 4.99 percent in 2031 – but should we really have to wait nearly a decade to realize the full benefits of this reform?
Accelerating the CNI phasedown would make even greater strides in the PA Chamber’s mission to bring more jobs, investment, and economic opportunity to Pennsylvania. The PA Chamber enthusiastically supports the call from Gov. Josh Shapiro and a strong bipartisan group of lawmakers to accelerate the CNI phasedown and maximize the benefits of Act 53 to keep pace with other states.
A lower CNI offers benefits beyond generating more overall investment. Studies show broad economic gains across the board when a state’s CNI is reduced – including higher GDP, higher wages, greater home values and increased job creation by businesses of all sizes.
And once the phasedown is complete in 2031 and Pennsylvania reaches a 4.99 percent CNI rate, a Tax Foundation analysis shows Pennsylvania will leap from 44th in corporate tax structure to 27th. In terms of overall competitiveness, Pennsylvania will have improved from 29th place to 17th, and will have gone from the second highest CNI rate in the nation to the eighth lowest, based on current rates.
Improving Net Operating Loss Treatment to Help Small Businesses
Net Operating Loss carryforward is a tax provision that allows businesses suffering losses in a taxable year to carry those losses forward and deduct them from future years’ profits.
This is especially beneficial to start-ups that often experience losses in their early years, and employers in cyclical business cycles where profits and losses tend to fluctuate.
Right now, Pennsylvania is one of only two states that cap NOL deductions below the federal limit – meaning the federal government allows NOL deductions at 80 percent of taxable income; and PA caps a business’s NOL at just HALF of that (40 percent) of taxable income. This is a red flag to employers and a major burden for the small businesses that constitute the backbones of their local economies. If you were a small employer that had the option between investing in a state that capped the NOL deduction in half or one that had no cap at all (25 U.S. states currently do), where would YOU choose to do business?
Improving the treatment of NOLs will promote a fairer tax system by reducing additional tax burdens on entrepreneurial risk, cyclical businesses, or those more susceptible to economic downturns. Pennsylvania is a national outlier in its antiquated treatment of losses, and fixing this flaw will promote future growth and make the Keystone State far more attractive to employers and entrepreneurs.