In case you missed it, the Center Square reported last week that Pennsylvania is becoming a more competitive state for business, though the progress has been slow-going. According to a new analysis by the Tax Foundation, the Commonwealth’s bipartisan tax reforms enacted last year in Act 53 were the driving force in elevating Pennsylvania’s standing in the national business tax climate.
The Tax Foundation’s latest ranking places Pennsylvania at 31st for its overall business tax climate, improving two places from the previous year. While the Commonwealth remains below the national average, this report highlights a positive trajectory, attributing much of the progress to the significant reduction in Pennsylvania’s Corporate Net Income (CNI) tax rate.
This tax, which dropped from 9.99 percent to 8.99 percent in 2023, is scheduled to phase down to 4.99 percent by 2031. The PA Chamber has strongly advocated for legislation to expedite the CNI phasedown so Pennsylvania can become more competitive even sooner, citing several states now moving forward on aggressive reforms.
The full report from the Center Square is shown below:
Compared to other states, Pennsylvania is getting more business-friendly, but it remains below average.
A ranking from the Tax Foundation placed Pennsylvania 31st for its business tax climate, a slight improvement from last year. Though it lags behind most states, the commonwealth is better than most of its neighbors. Only Delaware and West Virginia were ahead (21st and 22nd, respectively), with Maryland, New York, and New Jersey in the bottom tier.
The improvement mostly comes from the lowering of Pennsylvania’s corporate net income tax, which fell from 9.99% to 8.99% in 2023 and will decrease to 4.99% by 2031.
“The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth,” Jared Walczak, Andrey Yushkov, Katherine Loughead wrote for the Tax Foundation.
The Tax Foundation noted that the change, signed into law as Act 53 of 2022, is “transforming the nation’s second-highest corporate income tax rate into a much more competitive system of corporate taxation. As such, Pennsylvania’s corporate tax component score will continue to improve.”
The Pennsylvania Chamber of Business and Industry celebrated the rankings, arguing that the CNIT reduction means that “we are already seeing the benefits.”
“However, this report makes it clear that these reforms are not occurring in a vacuum,” the Chamber noted in a press release. “Several other states, many of which are already ranked higher than Pennsylvania, are pursuing additional pro-growth reforms that are attracting new investment and driving economic growth. These other states are not letting off the gas pedal, and neither should we.”
The Chamber argued that lawmakers should “seize this generational opportunity before us to positively reshape our economic future” and avoid “anti-growth policies” to “set the stage for a new era of economic investment.”
For the rankings, the Tax Foundation compared individual income, sales, corporate, property, and unemployment insurance taxes, with income and sales taxes comprising the majority of the ranking.
Pennsylvania has been middling in the Tax Foundation’s rankings for a decade, ranging from 37th in the mid-2010s to its peak this year.
“It is important to remember that even in our global economy, states’ stiffest competition often comes from other states,” Walczak, Yushkov, and Loughead wrote. “Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes.”