New Analysis: How Corporate Tax Cuts Are Contributing to PA's Long-term Budget Deficit
A decade of corporate tax cuts are a major reason that Pennsylvania is expected to have far fewer resources than it needs to pay for education, health care, and other essential services for years to come. Unless lawmakers reverse course and come up with additional revenue, our schools, communities, and families will continue to bear the brunt and our economy will suffer.
The elimination of the capital stock and franchise tax (CSFT), without a replacement, and other corporate tax changes mean that overall corporate tax revenue will decline in an expanding economy for the first time in at least a quarter century. Robust growth in sales and personal income taxes will not be enough to overcome the loss of corporate tax revenue.
While many analysts say higher pension and Medicaid costs explain the growing gap between the revenue the commonwealth is taking in and what it needs to meet its obligations — a situation known as a structural deficit — revenue losses from tax cuts are a significant factor. Corporate tax changes and reductions enacted during the Rendell and Corbett Administrations cost $3.2 billion in 2013-14 and will grow to almost $4 billion annually by 2018-19.
As the table above shows, if corporate taxes grew at the same rate as other taxes through 2018-19, the structural deficit would be all but eliminated.