Corporate Net Income Tax Reduction Proposal is a Win for Pennsylvania Businesses
Gov. Tom Wolf’s 2022-23 state budget proposal comes at a time of relatively positive fiscal conditions, with higher than anticipated revenue collections and billions of dollars in unspent coronavirus relief funding, which are expected to facilitate smoother budget negotiations. The $43.7 billion proposed spending plan is an aggressive double-digit increase over the 2021-22 enacted budget. The proposal includes $11.6 billion for K-12 public education funding – a $1.55 billion increase. The proposal included no broad-based tax increases, and for the first time in eight years, no additional tax on the natural gas industry.
Gov. Wolf’s budget proposal includes reducing the Corporate Net Income (CNI) tax rate – the PA Chamber’s top priority – from 9.99 percent to 7.99 percent on Jan. 1, 2023, with a reduction to 6.99 percent in tax year 2026 on a path to 4.99 percent. However, employers have expressed concern with the proposal’s subjective expansion of the state’s taxing authority, citing the need for clear, predictable standards for employers to follow.
At 9.99 percent, Pennsylvania has the unfortunate distinction of imposing the country’s second-highest CNI tax. The state’s disproportionately high CNI serves as a major red flag to potential investors and puts the Commonwealth at a distinct disadvantage as businesses look to other pro-growth states to open or expand operations. The state’s excessively high CNI rate was undoubtedly a major factor in PA failing to get any consideration for the $20 billion investment that Intel announced for Ohio. This comes on the heels of PA’s failure to attract two major steel manufacturing facilities – each one being a $1 billion investment – that were not made in PA due to the CNI and excessive regulatory cost. The PA Chamber encourages lawmakers to stay true to the principles of competitiveness, fairness, and predictability and advance substantial, long-overdue tax reform for businesses of all sizes. We also urge policymakers to address the Commonwealth’s unemployment compensation debt head-on, thereby avoiding a tax increase on all of the state’s job creators.
Also, of importance to the business community, Gov. Wolf called for an increase of the state minimum wage to $12 an hour on July 1, up from the federal minimum of $7.25 an hour, with annual increases of 50 cents until the minimum wage reaches $15 on July 1, 2028. PA Department of Labor & Industry data shows that the number of minimum wage earners has declined by over 56 percent over the last five years. The PA Chamber expressed appreciation for Gov. Wolf’s focus on helping low-income families. but urges a more modern and strategic approach to target support to the less than 1 percent of Pennsylvania workers who are low-income minimum wage earners.
The PA Chamber is committed to advancing policies that will help employers emerge from the pandemic, encourage them to invest and create jobs here and attract new and emerging industries to the Commonwealth. We will continue to work with lawmakers to pursue a public policy agenda to advance our state’s competitiveness through tax reform; workforce development and career readiness; flexibility in energy markets; balanced labor laws; and responsible state spending.