Pennsylvania’s Lackluster Economy Continues to Drive People, Businesses Away

Pennsylvania, once again, ranked poorly in national rankings due to its lackluster economy. Rich States, Poor States—an annual report compiled by the American Legislative Exchange Council (ALEC)—reveals many worrisome economic trends in the commonwealth.

Where PA Ranks

According to ALEC, Pennsylvania’s economic outlook ranks 34th. This is technically the commonwealth’s best showing in over a decade, which tells you everything you need to know.

Breaking out of the bottom third of states is hardly a cause for celebration. That means two-thirds of the nation offers a far more competitive environment for businesses and workers.  

Also, Pennsylvania ranks 43rd in economic performance, a slight bump from finishing 44th last year. Again, considering its decade of uninspiring GDP growth, the Keystone State is far from out of the woods economically.

What PA Gets Right

To be fair, Pennsylvania does some things right.

The commonwealth’s flat personal income tax structure earned a 2nd-place ranking, meaning Pennsylvanians keep more of their earnings than residents of other states.

The corporate income tax rate has also fallen significantly and will continue to decrease over the next few years. It still ranks 48th in the nation, but the trajectory is right, especially if lawmakers can expedite the decrease.

What It Gets Wrong

Pennsylvania ranked dead last in two categories: inheritance tax and right-to-work laws.

Pennsylvania’s inheritance tax punishes families who built something over their lifetime and simply want to pass it on. Yet, there is little economic justification for this tax. It doesn’t raise meaningful revenue. It drives wealthy retirees and family businesses to Florida, the Carolinas, and beyond. It is government taking a second bite out of what it has already taxed.

Pennsylvania also ranks 50th for not being a right-to-work state. In a competitive national landscape where workers and companies have real choices about where to locate, forcing workers to join a union as a condition of employment is an anti-competitive relic.

It’s policies like these that prove to be a gift to other states. Pennsylvania ranks 45th nationally for domestic out-migration, with nearly 92,000 people exiting the commonwealth between 2015 and 2024. These outmigration numbers represent families, entrepreneurs, retirees, and workers who couldn’t get by in Pennsylvania and found greener pastures elsewhere.

Interestingly, Pennsylvania’s tax rating could be better if not for Philadelphia. ALEC often lumps in the largest city into each state’s overall percentages. For example, Philadelphia’s own corporate income tax adds more than 6 percentage points to the statewide rate. 

How to Move Up

Pennsylvania doesn’t need a revolution. It needs basic reforms. It needs to repeal its inheritance tax. It needs to pass right-to-work legislation. It needs to speed up the cut to the corporate tax rate. Also, a healthy dose of regulatory reform would certainly go a long way.

The framework for a thriving economy is already in place. What is missing is the political will to remove the remaining anchors.

Unless that changes, Pennsylvania will keep ranking in the middle of the pack while watching its most ambitious residents pack up and leave.

Click here to review the full Rich States, Poor States report.