We can't wait a decade for corporate tax cuts to take effect, act now
A vibrant economy is sometimes just a matter of the right number, and for Pennsylvania the right number has never been 9.99%.
That's the mind numbingly high rate our commonwealth levied on Corporate Net Income, a rate that arguably has scared off out-of-state investors and prevented us from replacing Fortune 500 companies that faded away or simply left our state.
It's why the general assembly has at long last voted to reduce that rate and open the gates to new investment, better jobs, and upward mobility for working families.
More:The bipartisan push to cut corporate taxes in Pennsylvania, explained
This reduction is decades overdue and needs to be speeded up. And this reform must be protected from haphazard pauses in the process by subsequent legislatures. We can still recall the needless delays in the Corporate Stock and Franchise Tax phaseout. That nuisance tax was supposed to be off the books years earlier but fell hostage to budget maneuvering.
Businesses don't locate in places filled with uncertainty. They need to know this change in the Corporate Net Income Tax is really happening. Better to compress the timeline than to drag it out.
More:Guest Opinion: Decrease the CNI tax rate to increase economic opportunity in Pa.
Tax reform is not about saving corporations money. It's about jobs and, in fact, increasing revenues. As it now stands, it will take a decade for the competitive CNI rate of 4.99% to kick in. The talk must now turn toward shortening that timeline. People don't need these jobs eventually — they need them right now.
Here is a simple if counterintuitive truth: lower taxes not only spur economic growth but can generate more tax revenues by widening the economic playing field. The trick is to stop scaring off job-creators with rates far above the acceptable norm.
In 1963, John F. Kennedy, a Democrat, sought to spur the economy and increase revenues. He cut taxes, including a 4% reduction in the federal corporate income tax. Twenty years later, Ronald Reagan did the same thing and pulled our nation out of a recession.
Both men understood that demanding too much nets you nothing. Lowering the rate and freeing up money for further investment spurs growth. Think of it this way: rather than fighting over a larger share of the same, small pie, isn't it better to bake a larger one?
That's why the general assembly's vote to reduce Pennsylvania's counterproductive 9.9% Corporate Net Income Tax is the first step in a journey toward making Scranton more competitive with New York, Erie a more attractive draw than Ohio, and Philadelphia a better base than Delaware.
This points to an important reality. Just as the United States was competing on a global market, something recognized by JFK in the early 1960s, Pennsylvania competes with other states. Many won't remember how manufacturing and new technology plants migrated to North Carolina in the 1980s and 1990s. This outmigration has continued into this decade, with PH Glaftelter Inc. relocating its headquarters from York County to North Carolina. The list of lost companies is painful to consider. Mack Trucks left the Lehigh Valley for Greensboro N.C. in 2008. GE shifted its locomotive production from Erie to Texas.
It has become axiomatic among business analysts that lower taxes attract job-creators. There are virtually no salient arguments otherwise — at least none that show firms flocking to a spot where they face higher taxes.
Contrary to popular myth, North Carolina didn't offer one-off tax or subsidy deals to companies. They didn't need to. Their CNI was low. Businesses from IBM to Kennemetal arrived and set up shop. Today, North Carolina’s rate is 2.5% and they are beginning to phase it out altogether in the quest to collect more revenues. That's right: North Carolina is doing away with its Corporate Net Income Tax so they can generate more tax dollars.
Nathan Goldman, a research specialist in capital markets at North Carolina State University ran the numbers and came to this conclusion: corporate income taxes generate less than 5% of that state's revenues. In recent years, North Carolina landed a new Apple headquarters and the good-paying jobs that go with it.
Goldman predicts that if North Carolina continues to bring in new businesses and their employees due to the state's favorable business tax environment, "then the lost tax collections from a 0% corporate income tax rate may be dwarfed by the increase in tax revenues from a greater number of individuals who are paying individual income taxes."
That’s what Pennsylvania should be doing, and we shouldn't dawdle. Other states are going to figure this one out and we should position ourselves as a relocation and growth magnet before the others get into the act.
Right now, New Jersey is doing us a favor by overtaking our commonwealth as the highest corporate taxing state. We can't count on that to continue. We need to act quickly. We're pointing in the right direction. It's time to hit the accelerator.
State Sen. Ryan Aument, R-Lancaster, is co-chair of Building a Stronger Pennsylvania, a pro-growth coalition that advocates for a stronger business climate in the commonwealth.