In the middle of his final budget address, Gov. Tom Wolf joked that after his speech was over, “folks are going to run out into the hallway to take shots at the pieces of my budget they don’t like.” And he was right. Like clockwork, Republican lawmakers ventured out to the lieutenant governor’s balcony and criticized the level of spending proposed in Wolf’s executive budget proposal.
And while GOP lawmakers accused Wolf of living in a “fiscal fantasyland,” they all ended the day in agreement on at least one policy change outlined in Wolf’s budget: reducing the state’s Corporate Net Income Tax rate.
Wolf reiterated his call for a CNIT cut in his budget address this week, saying he believes the current rate is “too high.”
In his latest budget proposal, Wolf is calling for a phased reduction of the state’s CNIT, which currently taxes corporate income at 9.99%. Under his plan, the state’s CNIT would be lowered to 7.99% in 2023, then to 6.99% in 2026, and eventually to 4.99%.
This isn’t the first time Wolf has floated a cut to the state’s corporate tax rate, though this year he is no longer proposing that the state couple the tax cut with combined reporting – a practice that requires multi-state businesses to file combined tax returns for all of their affiliates.
Proponents, like Wolf, have long argued that combined reporting would prevent businesses from shifting their profits to other states with more lax tax laws. However, Wolf dropped his combined reporting proposal this year in favor of some other smaller changes to the state’s corporate tax laws that are still designed to prevent certain attempts to shift profits out of state.
Gene Barr, president of the Pennsylvania Chamber of Business and Industry, said that full combined reporting would do more harm than good.
“Combined reporting doesn't deliver anything to you other than a whole lot of litigation,” he said, adding that he would review the governor’s new CNIT proposal in-depth. “We will look at whatever language they propose, but we'll have a conversation, because it's not an option to do nothing. It really isn't on the CNI. We've done it for far too long. We've lost billions and billions in investment.”
Democrats agreed that the state should cut the CNIT, but suggested that the onus is on Republicans to get effective legislation passed.
“Democrats – progressive, moderate, conservative, east and west – recognize we need long-term investment in this commonwealth, and we're standing here again saying we want to cut business taxes,” said House Appropriations Committee Minority Chair Matt Bradford, of Montgomery County. “It’s Republicans … who are standing on the sidelines, gloom and doom, with no idea how to change the trajectory of this bus that they have been given a majority to run.”
Some Republicans expressed caution with Wolf’s stance on lowering the CNIT, fearing that the proposal was floated with this year’s midterm elections in mind. Still, they said it provides a starting point to achieve a long-sought reduction to the rate.
“I would say that it's more electioneering for him than it is in reality,” said House Appropriations Committee Chair Stan Saylor, of York County, who noted that Wolf’s proposed tax cut comes during an election year. “We, surely as a caucus, are definitely interested in tax cuts, and moving forward I look to have that discussion with the governor and our leadership team to see where we can end up.”
Senate Majority Leader Kim Ward, of Westmoreland County, expressed optimism toward Wolf’s openness to cutting the state’s corporate tax rate, saying it would “bring more companies to Pennsylvania and take down the ‘not open for business’ signs.”
“We’re so positive to hear that from the governor. It’s something that our state needs,” Ward said, adding that she would also be open to reforming the state’s inheritance tax. “We lose businesses every day to Texas and Florida.”
Legislative budget hearings begin this month, allowing lawmakers an opportunity to dive deeper into proposals outlined in Wolf’s executive budget proposal. A final state budget must be completed by June 30 of this year.