Solving Pa.'s Corporate Welfare Problem is Key to Tax Reform

Gov. Wolf’s budget proposal projects a small reduction in corporate welfare spending. When compared to the current budget, spending would decline by more than $26 million.

However, the reductions don’t go far enough. Gov. Wolf and the General Assembly should eliminate corporate welfare to create a fairer economic system for all Pennsylvanians.

The commonwealth’s propensity to offer millions of dollars in subsidies makes positive policy changes—like comprehensive tax reform—more difficult. By redirecting tax dollars to special interests, lawmakers have fewer revenue options available to reduce tax rates across the board. Critics argue special programs are necessary to boost economic growth. But empirical evidence and economic theory do not support the view that government-directed economic development boosts the economy.

Eliminating the more than $852 million in corporate welfare spending would allow policymakers to reduce the corporate net income tax (CNIT) by nearly 3.1 percentage points to 6.89 percent. The reduced rate would rank Pennsylvania 22nd among states with a corporate income tax. This stands in stark contrast to state’s 9.99 percent rate, which is the 2^nd highest in the country.

Reducing the CNIT will grow Pennsylvania’s economy and raise wages for working people. Federal tax reform, which included a significant corporate tax cut, is already improving the lives of Pennsylvanians. State lawmakers should build on this momentum and reduce the commonwealth’s tax burden.

When approaching tax reform, it’s important policymakers learn from other states that have passed sweeping tax code changes. In Kansas, tax cuts did boost economic growth, but lawmakers failed to control spending, which has resulted in fiscal pain. The Kansas model of lower taxes and unrestrained spending growth is destined for failure.

Pennsylvania should look to North Carolina as a prime example of the power of tax cuts and spending restraint. The state’s unemployment rate fell by more than half from its 2011 pre-tax reform level. The strong economy coupled with fiscal responsibility has given North Carolina a budget surplus, dispelling the myth taxes can’t be reduced without running a budget deficit.

With Pennsylvania’s unemployment rate registering at 6^th highest in the nation, now is the time to reduce the burden of government and begin rebuilding the commonwealth’s economy.