Open for Business

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Open for Business:

The Fight to Reduce PA’s Corporate Net Income Tax

By Katie Hetherington Cunfer, Director of Government & Community Relations, GRCA

Pennsylvania has been losing out on economic development opportunities to our neighbors and other states because of its complicated regulatory scheme, burdensome tax rates and other factors. The 2020 Census was a clear indicator that these limiting policies have directly contributed to PA’s population stagnation or decline in regions outside of SE PA and Pittsburgh. Once again, the Commonwealth is losing a seat in Congress and an Electoral College vote, going from 18 to 17 Congressional seats, which erodes its influence in the United States and on the world stage. This has been happening consistently every decade since the height of 36 seats following the 1910 Census. The 2020 U-Haul report (tinyurl.com/y4j6hxjd) indicated that New Jersey and Pennsylvania were No. 1 and No. 2 in states where people were moving out. These folks are leaving for warmer states to the south and west that also happen to have friendlier business and personal tax climates.

PA’s Corporate Net Income Tax (CNIT) is 9.99%. It ranks as the second highest CNIT in the nation, behind only New Jersey (11.5%). Based on the Tax Foundation’s 2022 State Business Tax Climate Index (tinyurl.com/2yr55yc5), PA ranks 44th for Corporate Tax Climate and 29th for Overall Business Tax Climate. Interestingly, PA ranks 15th for Property Taxes, but that’s based on tax rate, not how much is paid.

Finally, earnest efforts are underway this spring to make a positive and transformative change to PA’s business tax climate. In recent years, there has been an open discussion about how PA’s CNIT is hindering our economic competitiveness, and finally the needle is moving. The last time the CNIT was reduced was in 1995 by Gov. Tom Ridge from 11.5%. There has been bipartisan support for this effort to help PA grow out of the anticipated COVID-19 and inflation created recession, using the unexpected $2.6 billion and counting in revenue this fiscal year to help with the transition.

In April, the PA House of Representatives almost unanimously moved a bill to reduce the CNIT gradually and with deficit controls to 7.99% over a span of a few years. Comments from Democratic leadership was that this move wasn’t far enough and they wanted to see a larger reduction. This process will carry on in the Senate following the May 17 primary, but we fully expect to see some version of CNIT reduction to either be part of a stand-alone bill or incorporated into the budget.

The Greater Reading Chamber Alliance (GRCA) has been part of the CompetePA coalition, which has been engaged in this effort for the past 10 years. GRCA has been supportive of SB 771 (Sen. Aument) because it reduces the CNIT gradually through 2024 and includes further reductions based on increased tax revenue due to increased economic activity. While the Independent Fiscal Office’s analysis shows that these policies will result in lost revenue for that specific tax, data modeling projects that lowering the CNIT by one point can increase Pennsylvania’s population by an additional 18,000 people in the first year and that population will continue to grow each year thereafter and would lead to a meaningful increase of up to $223.35 in workers’ wages in the state based on annual mean wage in PA. States with the lowest CNIT rates experienced 10% higher growth in state revenues from 2000 to 2020 compared to those states with higher CNIT rates.

Implementing policies like reducing the CNIT and other changes can help get all businesses back on track. Please go to the GRCA Action Center to use the Call to Action to tell your PA elected officials you support efforts to reduce the CNIT. The time is NOW to finally hang the “Open for Business” signs on the borders of PA. We shouldn’t waste another 10-plus years to crawl our way out of a recession like the last time.