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Governor Wolf proposes halving key corporate tax in Pennsylvania

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Gov. Tom Wolf meets with members of the media after he spoke to a business group about his upcoming budget, Wednesday, Feb. 25, 2015, at the MusikFest Café in Bethlehem.

HARRISBURG — Gov. Tom Wolf on Wednesday said he wants lawmakers to cut the state’s corporate net income tax by half as part of a multi-pronged proposal to close tax loopholes and drop Pennsylvania’s rate from the nation’s second-highest to among the lowest.

Wolf, a Democrat, said during a visit to Bethlehem that his first budget proposal next week would seek to reduce the tax from 9.99 percent to 5.99 percent in 2016, 5.49 percent in 2017 and 4.99 percent in 2018.

“The commonwealth can help set the table for robust private-sector growth to create and retain good jobs while strengthening the middle class,” said Wolf, a York County businessman. “In order to create jobs that pay and an economy that grows, we must acknowledge that success will require investment in our companies and our people, and a new business climate that is welcoming and fair.”

Saying Pennsylvania has long been “hobbled by an outdated tax structure,” Wolf proposed eliminating the Capital Stock and Franchise tax, a tax on company assets, and imposing a tax reporting procedure known as “combined reporting,” a move that would expand the amount of income subject to taxation and is aimed at stopping companies from shifting profits earned in Pennsylvania to states where taxes are lower.

Wolf’s proposals drew mixed reactions from CEOs and lawmakers.

Dan Focht, CEO of Bioptechs, a Summit company that makes products for medical and biology researchers, said he is not a Wolf supporter but, “I’m glad he’s recognized this as a problem and taking steps to improve it. Those are definitely steps in the right direction to improving Pennsylvania’s productivity.”

The Wolf Organization, a kitchen cabinet distribution company, is based in Pennsylvania but has operations in at least 28 states. Wolf has a majority stake in the company but is no longer CEO, and his assets are in a blind trust, his press secretary Jeffrey Sheridan said.

“Reducing the (corporate net income tax) to 4.99% helps every business in Pennsylvania,” Sheridan said. He acknowledged Wolf’s company could benefit, but he would not know it because of the blind trust. The Wolf Organization is set up to pay taxes in every state where it does business, Sheridan said.

Reducing the corporate tax was among the governor’s campaign promises in 2014. Wolf, a former secretary of the Department of Revenue under ex-Democratic Gov. Ed Rendell, has said he is trying to close a $2.3 billion budget deficit and propose a “fair tax system.”

Pennsylvania Senate Majority Leader Jake Corman, R-Centre County, said Wolf’s proposal sounds appealing but evaluating it is impossible without knowing the rest of his plans. Some lawmakers contend Wolf will propose raising the personal income tax and reducing property taxes.

“We look forward to receiving and considering an entire package of specifics from the governor, not one idea floated at a time,” Corman said.

Corman said the proposed corporate tax cut could have a $1.25 billion impact on the state’s collections. The corporate net income tax last fiscal year brought in about $2.5 billion, about 9 percent of the state’s $28 billion budget.

Senate Minority Leader Jay Costa, D-Forest Hills, called Wolf’s plan “a very positive approach” that would broaden the base taxed under the corporate net income tax.

“You have to make it revenue neutral at a minimum,” Costa said.

Dave Cranston Jr., president of Cranston Material Handling Equipment Corp. in Robinson, said he is pleased Wolf plans to phase out the capital stock and franchise tax, which Cranston called unfair because it’s paid on the value of a business regardless of whether it makes a profit. Cutting the corporate tax rate in half would help many companies, Cranston said, but not if the state makes up for lost revenue by increasing other taxes.

“Certainly cutting the corporate tax rate is something that we should do if we want to invite businesses to Pennsylvania,” Cranston said.

The current corporate income tax makes Pennsylvania “the most expensive place to do business in the world,” said David Taylor, executive director of the Pennsylvania Manufacturer’s Association. It is the highest flat tax in the country, Taylor said.

It is second only to Iowa, which has a sliding scale that tops out at 12.99 percent. In Pennsylvania, it tends to be paid by “older, larger companies,” Taylor said.

As for Wolf’s combined reporting proposal, it is the “very definition of a bad idea,” Taylor said. “All 50 states have different systems of taxation.”

For many small businesses, the impact won’t be clear until it’s determined whether — and by how much — Wolf proposes to increase the personal income tax, said Kevin Shivers, director of the National Federation of Independent Business in Pennsylvania, a lobbying group for small businesses.

About 80 percent of businesses pay the personal income tax rather than the corporate net income tax, Shivers said.

Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, said Tuesday the chamber would have to weigh the impact of combined reporting against the corporate net income tax rate cut.

Wolf this month proposed a 5 percent severance tax on natural gas drilling companies. One argument the shale gas industry has made against increasing taxes on drilling has been that companies already pay high levies, including the corporate net income tax.

When asked about Wolf’s plan, though, Dave Spigelmyer, president of the Marcellus Shale Coalition, said few if any members are making enough cash in Pennsylvania to be subject to the tax. They might in a few years once more infrastructure is paid for.

“Corporate net hasn’t been the highest thing on our radar screen because most of our companies are in a negative position and have not had to pay it yet,” he said.

Brad Bumsted is Trib Total Media’s state Capitol reporter. Reach him at 717-787-1405 and [email protected]. Staff Writers Alex Nixon and David Conti contributed to this report.

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