The 2017-18 budget is finally complete. In late October, the governor signed into law a revenue package to balance the $32 billion spending plan that had gone into effect in July. After months of a protracted back and forth, lawmakers came to an agreement on a revenue deal that relies largely on borrowing against the state’s Tobacco Settlement Fund; one-time fund transfers; expanded gaming; a fireworks tax and requiring online vendors to remit sales tax. Noticeably absent from the deal was a slew of proposed tax increases that could have significantly impacted the Commonwealth’s business climate.
Throughout this year’s budget process, the PA Chamber has been strongly advocating against punitive taxes that single out specific industries and hurt the Commonwealth’s overall competitiveness. This year, the PA Chamber successfully fought back against more than $1 billion in proposed taxes that would have negatively impacted the Commonwealth’s business community and hard working families. Given the financial difficulties the state has found itself in over the past few years, the proposed taxes elected officials were considering were constantly evolving. Over the course of the elongated nine month budget negotiation process, the PA Chamber pushed back against numerous proposals – including: instituting combined reporting; a commercial storage tax; a hotel tax; a technology tax; and an increase to the insurance premiums tax. We also stood up against multiple attempts to enact higher energy taxes on Pennsylvania residents and businesses – including a proposed new tax on natural gas users; increased taxes on energy and phone bills; and an additional tax on the natural gas industry. And, we again spoke out against and eventually defeated efforts to increase the minimum wage to $12 an hour – a short-sighted move that especially hurts small businesses and makes it harder for low-wage workers to get their foot in the door.
As we repeatedly told lawmakers, we cannot expect our economy to prosper if we continue to look to short-term solutions to solve our budgetary problems. Instead, we need to embrace tax policies that focus on our long-term economic future and entice new investment. By creating a competitive business climate, more job creators will be enticed to stay and locate in the Commonwealth – which will then generate more revenue for the state.
One of the biggest hurdles holding Pennsylvania back is our overall business climate when compared to other states. A recent Wallet Hub survey ranked Pennsylvania 45th in the nation to start a business. Additionally, the Commonwealth’s economy ranked 39th in a study by U.S. News and World Report. And we consistently fall in the middle of the Tax Foundation’s annual State Business Tax Climate Index. These numbers do not send a welcoming message to potential investors.
Why does Pennsylvania rank so poorly? For starters, our tax climate leaves a lot to be desired – especially when compared to other states. Our corporate tax structure, including the Corporate Net Income tax – which at 9.99 percent is the highest effective rate in the country – is a major red flag for potential investors. Combined with that is a trend among certain state elected officials to want to go after specific industries by imposing tax increases. A perennial example in recent years – and this year was no exception – is our energy sector, which provides the Commonwealth with one of our strongest competitive advantages – access to affordable energy. And yet – this industry is consistently targeted by lawmakers to pay additional taxes. This mentality of taxing any industry that shows growth potential has got to stop.
Other challenges include our legal climate – which consistently ranks as one of the worst in the nation – and our regulatory environment, which makes it increasingly difficult for employers to do business in the Commonwealth. It’s also important to note, that in addition to the above mentioned challenges, demographics show that the state’s population is aging. The Commonwealth is home to world-renowned educational institutions – and yet, the majority of students are leaving the state upon graduation. Why? Because they are finding job opportunities in more economically competitive states. Combine this with the fact that there is a growing jobs skills gap in Pennsylvania – with employers having difficulty finding qualified workers – and it becomes clear that the state could be facing serious workforce issues in the near future if real solutions aren’t made to address this problem.
In order to compete in the global marketplace, we need to institute bold, out-of-the-box thinking and act accordingly. We can’t just look at short term gain – taxing any industry that is showing signs of success for a quick windfall to the state’s General Fund. These types of short-term solutions to issues facing the Commonwealth only impede our economic growth down the road. We are competing in a global marketplace. It’s time for our elected officials to focus on our strengths and competitive advantages and enact policies that foster growth in these areas.
Gene Barr is the President & CEO, Pennsylvania Chamber of Business and Industry