PA Chamber Vice President of Government Affairs Sam Denisco told lawmakers on the House Finance Committee last week that commonsense tax reforms are necessary to make Pennsylvania more attractive to investment and job growth, and help ensure our economic recovery and a brighter future.
In his testimony at an informational meeting, “Revitalization of Pennsylvania’s Business Tax Climate,” Denisco pointed to the Tax Foundation’s 2021 State Business Tax Climate Index which ranked Pennsylvania 27th among the 50 states in terms of its overall perceived business climate. While the state’s flat income tax is desirable to employers, this is offset by a disproportionately high corporate income tax and the treatment of net operating losses. “States with more competitive tax systems score well in the index, because they are best suited to generate economic growth,” Denisco said. “Pennsylvania doesn’t even make the top 50 percent.”
Denisco stressed that Pennsylvania’s Corporate Income Tax rate – which is the second highest in the nation at 9.99 percent – is driving businesses to locate and expand anywhere but Pennsylvania. The Biden administration’s proposed $3.5 trillion spending plan would worsen this situation by making the state’s businesses pay a combined rate of 36.49 percent – more than 10 points higher than the weighted average rate of every other developed nation. Denisco pointed to North Carolina as an example of a state that has experienced business expansion after gradually lowering its CNI over recent years. This has led them to rise from near the bottom of the states on the Tax Climate Index to fourth in the nation.
Denisco’s testimony also highlighted the need to improve Pennsylvania’s treatment of Net Operating Losses; aligning state law with federal law with regard to like-kind exchanges, as Pennsylvania is the only state that does not allow a state-level tax deferral when property is exchanged for similar property; and reforms to Section 179 deductions which would provide equity for small businesses.
In conclusion, Denisco said that while the PA Chamber recognizes the state’s budgetary challenges and the impact these proposed reforms might have on short-term revenues, Pennsylvania can no longer continue to be an outlier among other states. “The Commonwealth needs to be increasingly competitive, for both jobs and capital. Companies and investors have choices, both globally and among the states, on where to place their investments and we want businesses to remain here, invest here and grow here,” he said.