Commentary: Close the Loopholes: Pennsylvania Needs Fair Taxes
The following op-ed appears in the April 15, 2011 issue of the Pittsburgh Post-Gazette
By Sharon Ward
Many Pennsylvanians will grumble this week as they race to file their tax returns on time. Others will be laughing all the way to the bank.
Take General Electric, the nation's largest corporation. You would expect G.E. to have a pretty sizeable tax bill, right? Think again.
Despite worldwide profits of $14.2 billion (including $5.1 billion in U.S. profits), G.E. owed Uncle Sam nothing in federal taxes. In fact, the company got $3.2 billion back in tax benefits.
At a time when Washington is cutting a wide array of critical services — from food for nursing women and infants to heating assistance for seniors — policy makers continue to look the other way when it comes to tax loopholes.
These loopholes allow corporations to shift foreign profits into accounts in Ireland, the Netherlands and Bermuda to avoid U.S. corporate taxes. These gimmicks are so well known they have nicknames — the Double Irish and the Dutch Sandwich — and they have a huge cost, as much as $90 billion a year.
The giveaways are alive and well in Pennsylvania's antiquated tax system, too.
If your family earned more than $33,000 this year, congratulations! You paid more in income taxes than 85 percent of Pennsylvania corporations. Seventy-four percent of Pennsylvania corporations did not pay one dime in income taxes.
We're not talking about small businesses here. Large multistate and multinational corporations like Wal-Mart and Home Depot are employing high-priced accountants to game Pennsylvania's tax system. Tax loopholes allow them to shift income earned here to tax-haven states like Delaware, leaving little or no income on the books in Pennsylvania.
The so-called Delaware Loophole costs Pennsylvania taxpayers $500 million a year. Never mind that these untaxed corporations are using our roads and bridges or hiring employees educated in our public schools.
There is one modest-looking building in downtown Wilmington, Del., that is home to 14,000 shell corporations. They consist of little more than a post office box, but it's enough to funnel profits through. You and I don't have the luxury of hiding our income in other states.
Then there are the generous tax breaks for the tobacco and natural gas industries. Pennsylvania is the only major energy-producing state without a gas extraction tax. And we're the only state in the nation without an excise tax on smokeless and other tobacco products. Pennsylvanians support ending these tax breaks by large margins, and even the gas industry has agreed to a drilling tax. Where are Pennsylvania's leaders?
Altogether the Pennsylvania Budget and Policy Center has identified $1.8 billion in tax loopholes, special tax breaks and other corporate giveaways that should be eliminated before cutting close to $2 billion for schools, child care, colleges and services for vulnerable Pennsylvanians.
Pennsylvania's sales tax, riddled with exemptions that make little sense, is another candidate for reform. Do we really need to exempt helicopters or horse-shoeing from the sales tax?
Then there are the countless inconsistencies. At a concession stand, popcorn and soda are taxed, but candy and gum are exempt. Deodorant and antiperspirants are taxed; toothpaste is not. Tax is collected on a book bought at Barnes and Noble, but not one sold on Amazon.com.
For too long, our lawmakers have looked the other way while other states have closed tax loopholes, making their tax systems fairer. We can no longer afford to ignore this problem.
Lawmakers have a choice. If they choose to keep costly loopholes for the well-connected, the rest of us will pay more — in higher property taxes, higher college tuition and a weakened economy.
Pennsylvania's economy will be better off when companies thrive because of innovation and a strong marketplace rather than their ability to avoid taxes. Smaller Pennsylvania-based businesses without high-priced accountants shouldn't have to compete against — and pick up the tab for — big businesses adept at gaming the tax system.
Many of us will grumble as we prepare to file our tax returns on Monday, but let's do more than that. Let's declare April 18 Close the Loopholes Day in Pennsylvania. Let's send a message to our lawmakers: Before cutting schools, ending full day kindergarten or reducing rape crisis services, ask everyone to pay their fair share. We will all be better off for it.
Sharon Ward is director of the Pennsylvania Budget and Policy Center (www.pennbpc.org).