Corbett’s Unconscionable $833 million tax cut for corporations

No money for Adult Basic but millions for big business

Budgets are moral documents that set for the priorities of our government. Late last week, the Corbett Administration made clear that its top priority is helping American corporations not Pennsylvanians when it adopted new tax regulations that will reduce the corporate income tax by $200 million in 2010 and 833 over two years.¹ With the state facing a $4 billion deficit that may lead to massive cuts in spending on education and health care, and with the AdultBasic program expiring at the end of the month, a reduction in corporate taxes is simply unconscionable. The Governor of the Commonwealth should not be putting the profits of corporations over the needs of people.

The $200 million that the Corbett administration is giving away to corporations is more than the amount necessary to continue AdultBasic, which provides health insurance for 42,000 Pennsylvanians who do not qualify for medical assistance, for the rest of the year.

The new regulation will allow Pennsylvania corporations to deduct 100% of qualified business expenses in the first year instead of over a number of years. The federal government recently adopted a similar questionable policy but the Pennsylvania Department of Revenue admits that it did not have to follow suit. Because the federal government can run a deficit, a reduction in federal taxes need not lead to spending cuts. Pennsylvania cannot run a deficit. So the Corbett tax cut for corporations will require a $200 million reduction in state spending.

The Corbett administration claims that the tax cut will be recouped in later years. But, the ongoing effects of the recession have left the state is in a terrible fiscal crisis this year. Tax revenues are needed now more than they will be three years from now. In addition, the Corbett administration has made clear its determination to reduce business taxes when the economy recovers. If Governor Corbett gets his way, the reduction in corporate taxes this year will never be recovered.

The Corbett administration also claims that the corporate tax reduction will create jobs. But the Keystone Research Center has estimated that a $200 million reduction in state spending will lead to a loss of 5,000 jobs statewide, including 2,000 in the private sector. ² The tax cut may stimulate some new investment, but there is no reason to think that it will make up for this loss of jobs. In addition, because corporations can take this tax deduction in Pennsylvania for investments that occur in other states, the tax cut will not necessarily create any jobs in Pennsylvania.

Corporate taxes in many other states are, by law, coupled to the federal corporate tax. Thus the change in federal law would reduce their corporate tax collections at a time when revenues are low. That is why many other states are likely to take action this year to decouple their state corporate tax from the federal tax. ³ Pennsylvania’s corporate tax is not coupled to the federal tax. The Corbett administration is deliberately creating this tax cut and loss of $200 million in revenues.

 Even the Corbett administration knows this tax cut is embarrassing. They timed their press for late in the week hoping it would not get much press coverage. So far, that has been the case. We at Penn ACTION intend to make sure that Pennsylvanians understand that Tom Corbett is siding with his corporate campaign contributors rather than with the people of Pennsylvania.

¹ http://www.portal.state.pa.us/portal/server.pt/document/1046612/revenue_department_adopts_business-friendly_approach_to_corporate_tax_bonus_depreciation_pdf?qid=28860246&rank=1 . The $200 million estimate of the loss of revenue is from http://www.bloomberg.com/news/2011-02-25/new-policy-creates-pa-tax-break-for-business.html

² http://www.pennbpc.org/legislature-should-enact-budget-saves-jobs-keeps-recovery-track

³ http://www.cbpp.org/cms/index.cfm?fa=view&id=3413