Adding to this year’s budget drama: How to cut Pa.’s corporate tax rate
Cutting Pennsylvania’s corporate tax rate, which is among the highest in the nation, has emerged as one of the rare items of bipartisan agreement this budget season.
But as talks on the commonwealth’s 2022-23 spending plan move into what’s hoped will be their final days this week, Republicans and Democrats in the Legislature are still trying to reach an agreement on how to do it.
Lawmakers of both parties in the Republican-controlled General Assembly have backed bills to reduce the state’s 9.99 percent corporate net income tax, but none have garnered enough support to pass through both chambers.
Despite the current logjam, Erica Clayton Wright, a spokesperson for the Senate Republicans, said in a statement that she is “optimistic” that the final state budget — which was supposed to be in place by midnight on June 30 — could bring a decision on the tax.
History has shown that might not be the case.
The CNIT rate has not been changed since 1995, and recent talks to reduce the tax among state officials have carried on for months.
Democratic Gov. Tom Wolf, a former businessman, has proposed a plan to cut the tax to 6.99 percent, with a plan to reduce it to 4.99 percent in the future. However, bills on behalf of his plan have sat languishing in the Finance committees of the respective chambers since April.
In April, the state House passed a bill in a 195-8 vote that would immediately cut the tax rate to 8.99 percent and could lead to a future drop to 7.99 percent if the state’s General Fund has a specified surplus balance. It has remained in the Senate Finance Committee since late April.
The state Senate has passed two different bills that would seek to lower the tax, but both were referred to the House Finance Committee in mid-June.
A spokesperson for the House Republican Caucus said that negotiations for the state budget are ongoing and a number of measures are being considered.
A spokesperson for Wolf’s office did not respond in time for publication.
There are even more bills that are caught in a similar state of purgatory with their own variations on how to reduce the rate.
About 50 chambers of commerce from around the state asked lawmakers to lower the state’s tax rate in a letter from late May. They argued, as do many proponents for a CNIT reduction, that the high tax repels corporations from considering Pennsylvania as a place to locate new operations.
“Our members and partners have relayed numerous stories of missed opportunities and countless jobs lost as businesses look to locate in their towns, but ultimately choose to locate elsewhere due to Pennsylvania’s excessively high CNIT,” the letter read in part.
Attempts to reach the Pennsylvania Chamber of Business and Industry were unsuccessful.
Any corporation, foreign or domestic, must pay the state’s corporate net income tax, but nonprofits, homeowners associations, business trusts, agricultural cooperatives and membership organizations are excluded from the list.
Revenue from the corporate tax totaled nearly $4.5 billion during the 2020-21 fiscal year, according to the Statistical Supplement for the Tax Compendium for 2020-21. Funds from the tax, which are paid based on the profits of a registered corporation in the commonwealth, are deposited into the state’s General Fund.
The federal government also institutes a corporate net income tax of 21 percent, which is paid in addition to the state’s tax. The federal rate was reduced from 35 percent after former President Donald Trump signed the 2017 Tax Cuts and Jobs Act.
Jaxon White is a summer intern for the Pennsylvania Legislative Correspondents Association.