Pennsylvania's Economy Is Not Indicative of Its Business Climate

Pennsylvania’s economy is the most diverse in America. With the release of the latest Bloomberg Economic Diversity Index, Pennsylvania surpassed both Colorado and Texas to claim the top spot. The benefit of a diverse economy is that the state is less vulnerable to market fluctuations in a particular industry. However, the variety of businesses alone is not an indicator of economic health. 

Pennsylvania is ranked an unimpressive 34th for Business Tax Climate according to the Tax Foundation, experienced below-average personal income growth last year, and ranked 45th on WalletHub’s best states to start a business index. The variety of businesses in Pennsylvania manage to function despite its business environment, not because of it.

The variety of businesses in Pennsylvania manage to function despite its business environment, not because of it.

Currently, Pennsylvania is sending strong messages about the businesses they do and do not want. Two prime examples are agriculture and natural resource extraction—in the form of mining, quarrying, and oil and gas extraction. In 2018, Pennsylvania’s resource extraction-related industries contributed 5x more to the state’s GDP than agriculture-related industries. Its reward was politicians lining up to burden oil and natural gas extraction with a severance tax while simultaneously forking out $24 million to the agriculture industry. 

One of the best ways to encourage a diverse economy is to stop favoring one business at the expense of another through tax incentives or subsidies. This is exactly what corporate welfare does, and the state is set to spend over $700 million on these programs this year. Despite the programs being a demonstrable failure, Pennsylvania continues to give certain businesses unfair advantages. 

Cutting these programs would make the climate more competitive for businesses; using the savings to lower Pennsylvania’s Corporate Net Income Tax (CNIT)—the 3rd highest in the country—would be even better. In 2019, the corporate welfare savings could decrease the CNIT over 2 percentage points to 7.88%—according to August revenue estimates—while remaining budget neutral.  

Having a diverse economy is great. More important than that; however, is having an economy that provides good-paying jobs and opportunity to the people of Pennsylvania. This is accomplished through competitive taxes and the end to government favoritism of certain industries.