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Pennsylvania Governor Praises Tax Foundation Rank, But Should He?

2 min readBy: Joseph Bishop-Henchman

I was in Harrisburg last week, and as it happens on the day I was there, Governor Ed Rendell (D) held a press conference on our newly released 2011 State Business Tax Climate Index. Here’s what the Governor said (PDF):

The TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation’s 2011 State Business Tax Climate Index ranked Pennsylvania 26th among states for its overall tax burden, an improvement over its 30th-place ranking in 2007.

“Pennsylvania has been a leader in reducing business taxes during my administration. In the past 8 years, businesses have saved a grand total of $7.2 billion,” Governor Rendell said. “The Tax Foundation found that Pennsylvania’s business tax climate outranks five of our six neighboring states – New York, New Jersey, Maryland, Ohio and West Virginia – all of whom were ranked among the worst states for business taxes.”

(That sixth state is Delaware.) West Virginia ranked 37th, but the other states are in the bottom 10.

The Governor also mentioned that while Pennsylvania has a 9.99% corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. , the effective rate is more like 5% after accounting for various exemptions, deductions, and credits. He said that if we counted that instead, Pennsylvania would rank higher. We don’t, of course, because that would compare PA’s effective rate to everyone else’s statutory rate, and it’s probably the case in many states that the statutory rate exceeds the effective rate. But what I heard is that PA could gut its exemptions, deductions, and credits, and bring the rate down to 5% without losing revenue. Worth exploring, in my opinion.

Rendell also noted that 74% of businesses don’t pay income taxes, although a big part of that are probably unprofitable businesses. The corporate income tax is a tax on profits, after all.

We always appreciate such glowing press, but I’ll leave it to Pennsylvanians to decide if Gov. Rendell should properly take credit for what positive tax changes have occurred. I know that he has also unsuccessfully pushed for a higher income tax and a natural gas severance tax, which obviously our report did not account for.

The Chamber of Commerce had this to say:

Gene Barr, vice president of government and public affairs at the Pennsylvania Chamber of Business and Industry, said ranking ahead of neighboring states does not mean Pennsylvania has a good business climate.

“It’s all good to say we’re better than New Jersey,” said Mr. Barr. “But we’re not losing jobs to New Jersey. We’re losing jobs to Texas, Alabama, Mississippi and North Carolina. That’s where we’re losing our jobs. We compete with other countries. That’s where we have to look at.”

More on Pennsylvania here.