Pennsylvania Capitol Building in Harrisburg, Pa. (Photo by Amanda Berg for the Capital-Star).
A tax reform bill that would hasten cuts to Pennsylvania’s corporate tax rate and allow businesses to deduct a greater share of their losses drew the ire of House Republicans after it passed Tuesday night.
Although the legislation includes policies with bipartisan support, GOP leaders criticized Democrats, who control the state House, for amending the bill in a committee meeting hours before its final consideration to include “a special interests smorgasbord” that Republicans said would doom it to fail in the state Senate.
Among the provisions GOP lawmakers panned are a corporate net income tax reduction for medical marijuana producers and a $50 million boost in the state’s film production tax credit. They described it as a “tax and spend” measure that would cost the state $1.5 billion over the next three budget cycles.
The vote on the tax code bill came as lawmakers in both parties pushed for the completion of the 2023-24 budget process. Although the state Senate sent a $45.5 billion general appropriations bill to Gov. Josh Shapiro for his signature in August, about $1.1 billion in funding is bottled up without legislation to authorize the spending.
That includes roughly $640 million in funding for Pennsylvania’s state-related universities – the University of Pittsburgh, and Penn State, Temple and Lincoln universities – to pay for tuition discounts for Pennsylvania students.
In a maneuver similar to the tax code amendment on Tuesday, House Democrats amended a bill to provide funding for Penn State as a grant program award. Appropriations Committee Chairperson Jordan Harris, D-Philadelphia, said the legislation would “follow the normal procedure of any other bill.”
That would allow House Democrats to bypass the required two-thirds majority vote needed to approve funding for the universities. In July, the funding was defeated by a vote six short of the 135 required.
Rep. Seth Grove, R-York, who is the ranking Republican member of the committee, said a $212.6 million increase in funding for the universities included in the amendment would contribute to a structural deficit that Republicans maintain is looming in future budgets.
House Bill 1219 would also provide individual tax relief by creating state earned income and child and dependent care tax credits and would provide a cost of living adjustment to the income limits for poverty exemptions and special tax forgiveness to the state income tax.
If Democratic leaders wanted to pass bipartisan tax reforms they should have started with the core policies on which both parties agreed, Republican Leader Bryan Cutler, R-Lancaster, said.
“Instead, what we got was another legislative hostage situation … where we were asked to vote against policy we support because it was wrapped up in bad legislation and bad ideas that outnumbered the good,” Cutler said.
Not all Republicans dismissed the measure.
In a statement Tuesday night, Senate Majority Leader Joe Pittman, R-Indiana, called the legislation intriguing and praised House Democrats for directing part of the state’s $8 billion budget surplus toward tax reform rather than direct spending.
“Observing the House moving from performative to substantive action is a step in the right direction. I am eager to know what the governor would do upon this legislation reaching his desk,” Pittman said.
Shapiro, a Democrat, has not weighed in on the bill. With the House’s 102-101 vote along party lines on Tuesday, the legislation heads to the Senate for consideration.
Republicans and Democrats have supported corporate net income tax reductions and net operating loss deduction increases as a way to make Pennsylvania more competitive with other states to retain and attract businesses.
Pennsylvania Chamber of Business and Industry President and CEO Luke Bernstein said the corporate tax reforms cannot come soon enough, citing a federal Bureau of Labor Statistics analysis that ranked Pennsylvania the fifth worst state for business migration.
“Our state has the potential to be an economic powerhouse. We have world-class academic institutions and health care systems, abundant resources like energy and fresh water, groundbreaking innovation, and manufacturing hubs, close proximity to major population centers, and a talented workforce that is second to none,” Bernstein said.
In 2022, the General Assembly approved Democratic Gov. Tom Wolf’s plan to reduce the corporate tax rate for the first time in 1995. Legislation accompanying Wolf’s final budget will gradually cut the rate from 9.99% to 4.99% in 2031.
The bill includes a provision by Republican lawmakers, citing signs of economic growth and increased corporate tax revenue after the first 1% cut in January, to accelerate the process to reach 4.99% five years sooner, by 2026.
The bill would also increase the share of operating losses companies can use to offset income taxes from 40% to 80% over the next four years. And it would implement new reporting requirements to make it more difficult for large companies to shift profits out of state to reduce their corporate income tax liability.
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