$2 Billion in Business Tax Breaks Come at Expense of Schools, Communities

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Next year, Pennsylvania will spend $2.4 billion on business tax breaks. That amount has tripled over the last 10 years and does not count the hundreds of millions of dollars lost annually to corporate tax loopholes. Most of these tax breaks primarily benefit the largest corporations and come with no commitment to create jobs. 

Investing in schools, colleges, hospitals and infrastructure strengthens Pennsylvania’s economy and makes the state competitive with other states. If these investments become a lower priority than business tax cuts, we risk undermining our future economic growth.

More than two-thirds of the $2.4 billion in corporate tax breaks come from changes to the capital stock and franchise tax (CSFT), including the ongoing phase out of the tax which is worth $1.4 billion alone in 2012-13. Most of the remaining costs come from changes to the way the corporate net income tax (CNIT) is calculated, including placing more emphasis on a company's sales and less on property and payroll. The Pennsylvania House has approved a bill reducing the CNIT rate, further adding to the cost of business tax cuts in the years ahead.

Yearly Tax Benefit Received by Corporate Taxpayers Triples from 2003-04 to 2012-13
(figures in $ millions) Then Now
Tax Cut Provision 2003-04 2012-13
CNIT Weighting Sales Apportionment Factor (currently 90%) $58 $218
CNIT Net Operating Loss Carryforward 168 315
CSFT Manufacturing Exemption 297 134
CSFT Single or Three-Factor Apportionment 114 138
CSFT Valuation Deduction (currently $160,000) 65 31
CSFT Holding Company 10% Rule 71 90
Bank Goodwill Deduction NA 70
Job Creation Tax Credit 23 10
Research & Development Tax Credit 15 55
Subtotal - Non-Rate Tax Reductions $810 $1,061
CSFT Rate Cut (from 2002 rate of 7.24 mills) $0 $1,357
 
TOTAL COST OF MAJOR BUSINESS TAX CUTS $810 $2,418

Pennsylvania policymakers should be closing corporate tax loopholes and closely scrutinizing tax breaks, especially at a time when the state is making deep cuts to education, health care and investments in local communities.