PA Manufacturers' Association- Press Releases

Archives- April, 2008:

04/01/08

Compete PA: New study shows PA continues to lag internationally

HARRISBURG, PA -- A new study by The Tax Foundation indicated that with the exception of the state of Iowa, Pennsylvania’s combined federal and local corporate income tax rate is higher than any other industrialized nation.

This ranking is made even worse when combined with the fact that Pennsylvania has the most restrictive provisions in the United States regarding the treatment of operating losses, and a tax calculation factor that penalizes companies that invest in the state.

In light of the latest revelation of the Commonwealth’s poor competitiveness standing, individual businesses, business groups and local chambers of commerce comprising the statewide CompetePA Coalition continued their call for the enactment of targeted business tax reductions as a means of stimulating economic growth in the Commonwealth.

“Long before Pennsylvania began to feel the effects of a slowing national economy, our state was lagging the nation in key competitiveness areas and suffering from a poor reputation for business-friendliness,” said Gene Barr, vice president of government and public affairs, Pennsylvania Chamber of Business and Industry. “Pennsylvania has failed to take the steps necessary to create a sound business climate. We have chosen to compare ourselves only to neighboring states and not against other states and nations with which we compete for jobs and job opportunities.”

In addition to The Tax Foundation’s findings, Pennsylvania also received low marks in a recent competitiveness rating of the 50 states. According to the American Legislative Exchange Council study, the Commonwealth ranked 44th for economic performance and 37th for its economic outlook. And from 2005 to 2006, Pennsylvania’s Gross Domestic Product grew at only half the rate of the U.S. average.

“The tax reforms supported by the unified business community, as well as by lawmakers from both sides of the aisle, will do more than just boost Pennsylvania during difficult economic times, they will help to ensure long-term economic prosperity,” Barr said.

The reforms include eliminating the cap on net operating losses (Pennsylvania is one of only two states that cap net operating losses) and implementing a Single Sales Factor apportionment formula for the Corporate Net Income tax.

Not limiting losses that companies can claim against their current tax liability would be particularly beneficial to start-up businesses, including those in the burgeoning biotech industry, which often lose money in their first years of operation. While implementing a Single Sales Factor would mean that Pennsylvania-based businesses would no longer be penalized for increasing investments in capital and hiring employees. Doing so would also remove a disincentive to attracting new businesses to Pennsylvania, as out-of-state companies that only sell in the state have an advantage over PA-based firms under the current CNI apportionment formula.

“As the nation stands on the brink of recession, the pro-growth CompetePA legislation is the economic ‘stimulus’ Pennsylvania needs,” said David N. Taylor, executive director of the Pennsylvania Manufacturers’ Association. “These two business tax reforms – uncapping NOL carryforwards and enacting a Single Sales Factor – will go a long way toward improving Pennsylvania’s economic competitiveness. But there’s no time to waste: our elected officials in Harrisburg need to act now.”

The proposals build on reforms included in the 2006-07 budget, which raised the sales factor from 60 percent to 70 percent and increased the NOL cap from $2 million to $3 million.

Despite those gains, Pennsylvania's job creators continue to operate under a tax structure that penalizes them for being successful and makes it difficult for them to get off the ground and become successful.

Legislation that would enact the tax changes is sponsored in the House by Reps. Mike Gerber, D-Montgomery, and Mike Turzai, R-Allegheny, and has 127 Republican and Democratic co-sponsors. The bill is sponsored in the Senate by Sens. Wayne Fontana, D-Allegheny, and Pat Browne, R-Lehigh/Northampton/Monroe.

“We would hope that the legislature listens to the unified voice of the business community,” said Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce. “Pennsylvania needs to be competitive, not just among other states but among the world, and it simply is not. This legislation will begin to get Pennsylvania where it needs to be competitively.”

For more information on the CompetePA Coalition, visit www.CompetePA.com

Contact: Lesley Smith, 717-720-5446

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