HARRISBURG (TNS) — As state budget negotiations get underway in earnest this month, some tax relief appears to be on the way to make Pennsylvania business friendlier.
Legislation to cut Pennsylvania’s tax on corporate profits won passage in a Senate committee on Monday that would incrementally lower the state’s 9.99% corporate net income tax rate by 1% on Jan. 1, 2023. Then the rate would drop 1% on Jan. 1 in each of the following years until it reaches 6.99% in 2025.
The Senate Finance Committee approved the bill, sponsored by Sen. Robert Mensch, R-Montgomery County, on a party-line 7-4 vote.
The House overwhelmingly passed a similar bill in April that incrementally lowers the corporate net income tax rate to 8.99% in 2023 with a trigger mechanism to lower it to 7.99% by 2025 provided the state has surpluses of at least $500 million. As of June 1, the state Department of Revenue reported the state had a $4.9 billion surplus.
Gov. Tom Wolf included a rate cut in his budget proposal as well. He wants to lower the rate to 7.99% in 2023 and incrementally lowering it to possibly as low as 4.99% by 2028 but also wants to include what Republican lawmakers have called “backdoor tax increases” to offset some of that revenue loss.
Pennsylvania’s rate is arguably the nation’s second highest, if not the highest, tax rate on corporate profits, Mensch said. It serves as a deterrent to corporations wanting to locate in Pennsylvania.
“It makes us less competitive,” Mensch said. “Hopefully, we will be able to attract more C corporations.”
But Democrats on the Senate committee opposed the bill.
Sen. Wayne Fontana, D-Allegheny County, explained while they favor lowering the corporate net income tax rate, “I think we need to consider the fiscal shock to the commonwealth and the potential inadvertent tax burdens we could be placing on our constituents.”
He said the revenue department estimates lowering the corporate net income tax by 1% a year would lower revenues to the commonwealth by more than $1.2 billion in the first three years.
“So a comprehensive approach to reduce the tax rate and broaden the base is needed,” Fontana said.
Among the ideas Senate Democrats have offered is one authored by Sen. Art Haywood, D- Philadelphia, that Fontana said would lower the tax burden or have no impact on 80% of Pennsylvanians.
Haywood’s legislation lowers the state’s 3.07% personal income tax rate to 2.87% and imposes a 6.5% tax on wealth from net profits, royalties, gambling winnings among other income sources. Haywood was going to try to amend his proposal into Mensch’s bill in committee but said instead, he would offer it when the bill comes up for a vote on the Senate floor.
