Income tax

Colin McNickle: Pa.’s corporate net income tax cut is a good start

News that Pennsylvania is tough Corporate income tax (CNIT) will be reduced five percentage points over the next nine years is welcome and long overdue.

But the big questions are whether the Commonwealth can maintain the phased reduction, from 9.99% to 4.99%, reduce other business taxes and enact legislation to better retain and attract businesses to the key state, concludes an analysis by the Allegheny Institute for Public Policy. .

“Ultimately, Pennsylvania must continue to make policy decisions like this if it is to become a competitive state,” says Benjamin Seevers, research assistant at the Pittsburgh think tank.

The CNIT is “the tax paid by all domestic and foreign corporations for the privilege of doing business, carrying on business, or employing or owning capital or property in Pennsylvania,” the state notes. Tax Compendium. Law 53 of 2022 authorizes its reduction.

Pennsylvania’s Independent Fiscal Office (IFO) says the tax generated $5.3 billion in revenue in fiscal year 2021-22, a significant increase from the $3.6 billion average for fiscal years 2019-20 and 2020-21, attributable to the economic fallout from covid and inflation.

Pennsylvania’s CNIT rate was either highest or second highest in the nationdepending on how it is measured, which has kept the Commonwealth at a competitive disadvantage.

And while critics are wont to point out that cutting the CNIT will result in hundreds of millions of dollars in “lost” revenue for the state, other tax law changes will help mitigate those losses.

In addition, CNIT’s revenue reduction could be further enhanced by personal income tax and sales tax increases resulting from the start-up or expansion of corporate operations in Pennsylvania.

“Since the CNIT cuts are expected to stimulate Pennsylvania’s economy, the state should try to offset any net loss in tax revenue by cutting public funding for economic development,” Seevers suggests.

“The government should take the opportunity to cut spending on economic incentives deemed necessary. The CNIT rate cuts are a good first step – but by no means the only necessary step – to make the state more economically competitive.

But there remains a generic question as the phasing out of the CNIT begins.

“Was this tax cut made possible by the unprecedented federal assistance of $3.8 billion? Seevers asks, noting how $3.8 billion in covid relief was transferred to the general fund and a $2.6 billion surplus from the general fund was transferred to the rainy days fund in fiscal year 2021 -22. In fiscal year 2022-23, a projected general fund surplus of $2.1 billion is to be transferred to the rainy day fund.

“State lawmakers are candid that the CNIT reduction is made possible by a healthy rainy day fund,” Seevers says. “What will they do when the covid aid expires?”

He sees the possibility that the schedule for lowering rates will be called into question with the progressive reduction either delayed or cancelled.

“Or will the reduction in the net corporate income tax rate spark new investment and expansion in Pennsylvania and fill the state’s tax coffers in other ways?” Seevers asks.

“Pennsylvania should make a firm commitment to meet the CNIT’s planned cuts and continue to lower taxes overall,” Seevers concludes.