HARRISBURG — In a bid to spur the economy, Republican Gov. Tom Corbett quietly and unilaterally approved an estimated $200 million in tax breaks for businesses last week by adopting new federal tax rules.
Corbett’s decision allows businesses to write off the entire cost of expenses in one year, rather than spreading out the write-off over several years. The goal is to spark a corporate buying spree, in which companies buy equipment now — which pumps up demand, which leads to more hiring.
The program, though, will cost the state $200 million, which critics say the state should spend on individual taxpayers rather than corporations while money remains tight.
Announced Feb. 24 in a Department of Revenue news release, the move generated little attention until groups critical of the tax break began attacking it this week.
“This comes out of this year’s budget when we can least afford it,” said Sharon Ward, director of the Pennsylvania Budget and Policy Center, pointing to the state’s $4 billion deficit.
The new tax rules will cost the state an estimated $69.4 million this year, and $132.2 million next year, said Department of Revenue spokeswoman Elizabeth Brassell.
“It is unconscionable that Gov. Corbett is giving tax breaks to corporations while proposing huge cuts to programs that directly affect working people,” said Eileen Connolly, chair of Keystone Progress, which bills itself as a progressive advocacy organization.
Corbett this week ended state funding for adultBasic, an insurance program for the working poor that provided more than 41,000 people with health coverage.
The state could have used the money going for corporate tax breaks to fund the adultBasic program, said Sen. Jay Costa of Forest Hills, ranking Democrat on the Senate Appropriations Committee.
“Given the context of our budget and the talk about a ‘day of reckoning,’ how can we put in nearly a quarter of a billion in tax cuts for corporations?” Costa said.
Costa said that although some business tax cuts are warranted, “it needs to be in balance.”
Corbett will present a 2011-12 state budget Tuesday to a joint session of the General Assembly.
“We are paying for it,” Corbett’s spokesman Kevin Harley said of the tax break. “That will be part of the budget.”
“This allows Pennsylvania to remain competitive with other states,” he said. “We’re in competition with other states for jobs. It’s important to create a climate for business to prosper and to create jobs.”
After two years — the rule change applies only to 2011 and the last quarter of 2010 — the state will recoup the money it loses this year. Businesses that write off their entire purchases this year won’t be able to deduct anything in later years; therefore, over the long term, the state will take in the same amount of money.
But “timing is important,” said Michael Morrill, executive director of Keystone Progress.
He said Corbett wanted to get this out ahead of the budget “so it’ll get lost in the whole budget discussion” next week.
Corbett’s spokesman disagreed.
“The timing had nothing to do with the budget,” Harley said. “The timing had everything to do with businesses who have to file tax returns.”
Morrill said he doesn’t challenge Corbett’s right to make the move unilaterally.
Ward, of the Pennsylvania Budget and Policy Center, contends that it’s not clear Corbett can do so.
Harley said there’s no question that Corbett has the power to make the move.
The issue has remained largely under the radar.
“I’ve talked to a lot of legislators who don’t know anything about it,” Morrill said.
The same is true for many in the business community.
The Greater Pittsburgh Chamber of Commerce of Commerce declined to comment because it hadn’t reviewed the new rule.