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Mailbag: Would Eliminating Tax Credits Really Lower Taxes?
Last month, I testified to the House Finance Committee that targeted tax breaks and corporate welfare subsidies prevent across-the-board tax rate reductions that would benefit all Pennsylvanians. As a follow-up question I was asked: If Pennsylvania eliminated its tax credit/grant programs, how much could the Corporate Net Income Tax be lowered?
We identified $381 million in grant and tax credit programs in the 2012-13 Budget to eliminate. This reduction could be used to lower the corporate tax rate by 1.87 percent, dropping the tax rate down to 8.12 percent. And that’s assuming a purely static model, not factoring in new businesses attracted with the lower rate.
Instead of having the second-highest corporate tax rate in the nation (and the highest flat rate), Pennsylvania would be lower than 13 other states and DC.
| Corporate Welfare Grant & Tax Credit Programs | 2012-13 Budget (Thousands) |
| General Fund | |
| Ben Franklin Tech Development Authority Transfer | $14,500 |
| Commonwealth Financing Authority Transfer | $85,519 |
| Pennsylvania First | $29,500 |
| Partnerships for Regional Economic Performance | $11,880 |
| Discovered in PA Developed in PA | $9,900 |
| Infrastructure and Facilities Improvement Grants | $19,409 |
| Industry Partnerships | $1,613 |
| Tax Credits | |
| Film Tax Credit | $60,000 |
| Job Creation Tax Credit | $10,100 |
| Research and Development Tax Credit | $55,000 |
| Keystone Opportunity Zone | $24,200 |
| Keystone Innovation Zone | $25,000 |
| Alternative Energy Production Tax Credit | $7,000 |
| Neighborhood Assistance Programs | $18,000 |
| Resource Enhancement and Production Tax Credit | $10,000 |
| Total Spending and Credits | $381,621 |
This is the approach Michigan took this year when it eliminated hundreds of millions of dollars in tax credits as part of its transition to a 6 percent flat corporate tax. According to the Tax Foundation’s 2013 State Business Tax Climate Index, this change moved Michigan from having one of the most destructive corporate tax rates to the seventh best.
Making Pennsylvania more business-friendly would significantly reduce the need for corporate welfare. Until this happens, Pennsylvania is merely renting jobs with its economic development spending.