Earlier this month, Gov. Tom Wolf presented his 4th annual budget address to the General Assembly. With state revenue collections continuing to look promising, the administration is projecting to close out the current fiscal year with a surplus – however, in what many are describing as an ‘election year’ budget, the governor still proposed a 3.1 percent spending increase over the current year and included several components in his spending plan that would negatively impact the state’s overall business climate.
One of the most glaring examples is his repeated call for an additional punitive tax on the natural gas industry. We’re disappointed that the administration continues to single out this industry for more taxes. This tax would be paid in addition to the impact tax and the other business taxes that the industry already pays. As I have previously noted in this column, Pennsylvania is the only gas producing state to impose an impact tax – which has provided the state with more than $1.5 billion in funding for conservation, infrastructure, environmental protection and emergency response. In fact, in 2016, the impact tax raised more money than the severance of Ohio, West Virginia, Colorado and Arkansas; even though those states’ combined output was higher than production in Pennsylvania. Additionally, the Independent Fiscal Office has said the effective rate of the impact tax is already competitive with other states’ severance rates.
We’re working to get the word out that government unions are the ones who are really driving the campaign to enact this tax. We must not forget that the state and many of its school districts face structural imbalances because of rising pension costs largely attributable to a retroactive benefit increase in 2001. As a result, property tax rates in this state have climbed considerably and place a significant financial burden on many families. Now, these same government unions, whose members are already benefitting handsomely from these pensions and other taxpayer-funded benefits, have thrown their support behind a tax on natural gas, the fuel that is used to heat millions of Pennsylvania homes. We strongly oppose raising costs on Pennsylvania families and putting jobs and businesses at risk just to satisfy these special interests. An additional tax would risk the loss of further investment and economic opportunity in an area that could otherwise yield tremendous economic results for our state.
The administration has also proposed changes in this year’s budget plan to the Commonwealth’s corporate tax structure that would negatively impact employers. While we agree that the state’s Corporate Net Income Tax rate – which has the highest effect rate in the nation – needs to be lowered, we disagree that making a CNI rate reduction contingent on the implementation of mandatory unitary combined reporting is good for business. This complex, overly broad tax reporting system will only lead to increased administrative and litigation costs and will put Pennsylvania at a greater competitive disadvantage.
Also concerning is the administration’s push to mandate an increase in entry level wages to $12 an hour – a move that would significantly impact the Commonwealth’s small businesses and could lead to substantial job loss. Countless independent studies have shown that these policies lead to negative impacts on employment, including job loss. A Congressional Budget Office report found that an increase to $10.10 an hour would result in the loss of 500,000 to 1 million jobs nationwide. We know from experience these mandates disproportionately impact small businesses, many of whom operate on extremely thin profit margins. Another recent study from the University of Washington found that Seattle’s $13 an hour minimum wage rate – which went into effect in 2016 – has led to employee hours dropping by 9 percent and has actually lowered the average monthly income for low wage workers by $125. No doubt some individuals benefit from mandated wage increases; but the fact is many others are hurt – including the very people advocates claim they want to help.
Rather than mandating wage increases, our state officials should follow the recent actions of the federal government and focus on policies that will spur economic growth without mandates. In the weeks since the enactment of the Tax Cuts and Jobs Act, businesses across the nation have announced plans to increase wages and benefits for their employees. These companies understand that the federal tax reform package will vastly improve our nation’s overall competitiveness in the global marketplace – giving employers the opportunity to reinvest back into their organizations and employees. This is how the market works when businesses are allowed to thrive – which helps to grow our economy and create more jobs.
Over the coming months, the PA Chamber will be closely watching as the budget process unfolds. We will continue to advocate for pro-growth policies that will help the private sector to flourish and grow the Commonwealth’s economy.