We need help for working families, not corporate tax cuts
The state Senate recently voted to pass a bill sponsored by state Sen. Michele Brooks, of Mercer County, R-50th Dist., that would lower the state's corporate net income tax rate starting next year. This follows an April vote in the state House to do the same.
At a time when working families are struggling to pay for groceries, gas, and baby formula, it's troubling that our state reps would consider a major tax break on corporate profits.
Two decades of corporate tax cuts in Pennsylvania have already cost the state $4.2 billion a year in revenues, according to the Pennsylvania Budget and Policy Center (PBPC). That’s money that could've gone to education, housing, child care, and health care. The latest round of tax cuts is estimated to cost the state an additional $6.3 billion over 10 years.
Arguably, the cost would be justified if it attracts new businesses and jobs. But the evidence isn't there. Any honest look at the research shows that cutting corporate taxes creates few, if any, jobs for two main reasons.
First, most jobs are created by businesses already in a state, not by out-of-state firms seeking lower taxes. In Pennsylvania, nearly 86% of new jobs created between 1995 and 2013 were "home-grown jobs" created by in-state businesses, according to the Center on Budget and Policy Priorities.
Second, corporate net income taxes are a relatively small cost of doing business. According to the Council on State Taxation, which represents business taxpayers, the CNIT amounts to 0.3%–0.4% of the total cost of doing business in the state. As a result, the impact of reduced corporate tax rates on job growth is negligible. For example, the PBPC projects a 2-point cut in the CNIT rate, as proposed by the Pennsylvania state House, will generate about 23,000 jobs over ten years — but only 20% of those jobs (about 4,600) will go to current Pennsylvanians. They also point out that if you factor in the 10-year cost of over $6 billion in lost state revenues, that amounts to almost $270,000 per job.
That’s a hefty price, and it will be subsidized by you. Because tax cuts for corporations ultimately lead to higher taxes for everyone else, as the cost of funding our schools and infrastructure falls to working people in the form of higher sales, income, and property taxes.
This exacerbates an already unfair tax system — ranked seventh worst in the country by the Institute for Taxation and Economic Progress — in which ordinary Pennsylvanians now pay almost twice as much of their income in state and local taxes as the richest 1%.
Cutting the CNIT rate will exacerbate this inequality at a time when ordinary Pennsylvanians need help from the state. Almost 40% of Pennsylvanians can’t afford basics like food, housing, health care, and transportation (in Erie County, that number is 46%), according to the United Way. Yet the state legislature is doing virtually nothing to provide more affordable housing, health care, and transportation, even though such investments would strengthen the ability of the state to develop and attract new businesses.
Instead, legislators are following the path demanded by corporations and the rich, cutting their taxes while telling us the benefits will "trickle down." But decades of false promises should tell us that corporate tax cuts won't do anything to help working people; nor will it rectify an unfair tax system in which the biggest companies benefit at the expense of smaller businesses.
Right now, the largest companies pay NO taxes to the state thanks to the so-called "Delaware loophole," which allows 73% of corporations in Pennsylvania — mainly wealthy multistate and multinational corporations — to avoid corporate net income tax by shifting profits out of state.
Those profits, and the income of those who own corporations, have grown rapidly in recent years; meanwhile wages have stagnated for working people while the costs of housing, fuel, health care, and education have risen.
The result is an economic agenda that favors the rich, and a tax system that continues to allow out-of-state corporations to pay nothing, while small businesses and working families carry the load.
Instead of giving more tax cuts to corporations, state legislators should be working to provide economic relief for independent businesses and working families.
Joe Tompkins is an associate professor of communication at Allegheny College, where he teaches about the discourse of politics and economics. His views don't necessarily reflect those of Allegheny College.