HARRISBURG, Pa., April 19 /PRNewswire/ -- On Tuesday, the co-chairs of the Pennsylvania 21st Century Tax Policy Project (PA21), an unprecedented collaboration between business and labor, will deliver a report to the Governor's Business Tax Reform Commission to help it reform state tax policy to meet the challenges of the 21st century. The PA21 Board will offer its report, and the process of analysis and stakeholder negotiation that produced it, as a foundation for the work of the Commission, and ultimately the legislature and governor, in order to achieve a tax system in Pennsylvania that will reliably support needed public services, create a well-educated workforce, encourage a competitive economy, and be administered efficiently and fairly. The PA21 Board includes representatives of the Pennsylvania AFL-CIO, the Pennsylvania Business Roundtable, the Pennsylvania State Education Association, and the Allegheny Conference on Community Development. In a joint statement, the Co-Chairs of the PA21 Board, William George, President of the Pennsylvania AFL-CIO and H. Craig Lewis, representing the Pennsylvania Business Roundtable, said, "PA21 demonstrates that it is possible for business and labor to achieve common ground on the polarizing issue of taxes. We urge the Business Tax Reform Commission to follow a similar approach and to build on our work in order to achieve the ambitious mandate established by the Governor." The PA21 Project was initiated because of the joint concern by both business and labor that Pennsylvania's tax structure is impeding job creation in the state. The project's report was developed in 2003 with professional staff support from Ernst & Young, the Keystone Research Center, and the Pennsylvania Economy League, and with extensive stakeholder input by businesses and labor groups from across the state. The PA 21 Board agreed that an effective tax reform package should include: -- Reduction in corporation taxes to make Pennsylvania rates more comparable with comparison states. Business taxes should also be made more equitable. -- Broadening of the sales/use tax base and lowering of the rate to equitably tax more of the items in a modern consumption basket. -- Increasing the overall progressivity of the tax system to make Pennsylvania taxes more equitable across household income levels -- Use of state revenues to reduce residential property taxes. In addition, the Board agreed that objective comparisons to other states and analyses of impacts on taxpayers and the state's economy should guide decisions about tax reforms. The Board found that a package of tax rate and tax base changes could achieve broader support than any individual change on its own. "The illustrative tax reform package developed by PA21 shows that it is possible to achieve tax reforms that would make the Pennsylvania economy more competitive, raise adequate revenues to fund needed public services, and improve the fairness of the state tax system," said George and Lewis. "Moreover, a joint process can lead both labor and business to consider changes that would not be acceptable in the absence of a comprehensive reform." (The table below shows the illustrative tax reform package developed by PA21. Tax changes in the table that were implemented as part of the December 2003 budget agreement have an asterisk.) The PA21 Board stopped short of developing a formal recommendation last year in the context of a difficult state budget debate. However, the specific tax issues and analyses presented in the report should be able to inform the work of the Governor's Business Tax Reform Commission as it seeks to develop its recommendations. "There are few entirely new ideas in state tax policy," said Lewis and George, "and many of the specific issues that PA21 examined have been the subject of previous debate. Our contribution is providing a process whereby these elements can be assembled into comprehensive packages that represent good public policy and could garner support from diverse constituencies. We look forward to working with the Commission, and ultimately with the General Assembly and Governor, to utilize this work and enable Pennsylvania to become a model for effective taxation." For more information, contact Pennsylvania Business Roundtable, 717-232-8700; Fax 717-232-9108 Pennsylvania AFL-CIO, 717-231-2842; Fax 717-238-6016 PDF copies of the PA21 report will be posted shortly on the web pages of Board organizations, IssuesPA (www.issuespa.net) and the Keystone Research Center (www.keystoneresearch.org). Example of a Comprehensive State Tax Reform Proposal, Part A (excluding revenue to fund local property tax relief) (adapted from p. 5 of Pennsylvania 21st Century Tax Project; notes are on the next page) PA21 Package Increase (Decrease) $Millions Households Business Corporation Taxes A. Corporate net income Broaden base -- eliminate tax abuse (a) $130 $130 Decrease rate from 9.99% to 7.99% $(298) $(298) Expand R&D Tax Credits (b)* $(45) $(45) 100% sales factor apportionment (presently 60% weighted) $(57) $(57) Eliminate net operating loss (NOL) deduction cap ($2M/yr) $(43) $(43) Market sourcing of services sales (sales factor apportion.) $(42) $(42) Total CNI $(355) $- $(355) B. Capital stock/franchise Repeal tax $(847) $(847) Alternative net worth tax @2.5 mills; pay larger of NWT or: CNI tax @ 7.99% CNI rate $260 $260 Pass-through entity tax @ 4.25% rate (vs. 3.75%) $34 $34 License fee: CNI taxpayers @$1,000 $134 $134 Pass-through entities @$100 $15 $15 Total franchise $(404) $- $(404) C. Other corporate Other corporate (c)* $298 $298 Repeal Loans Tax $(13) $(13) Total other $286 $- $286 Total -- corporation $(474) $- $(474) Consumption taxes Sales: base broad. & lower rate to 3.5% (except vehicles) $369 $(236) $605 Low Income Credit $(76) $(76) Total -- consumption $293 $(312) $605 Personal income tax Increase personal income tax rate from 2.8% to 3.1%* $710 $634 $76 New rate of 5.5% on unearned income $542 $484 $58 Change const. to allow no tax on 1st part of wages/income Total -- PIT $1,252 $1,118 $134 Change in total state taxes -- PA21 proposal (d) $1,072 $806 $266 Example of a Comprehensive State Tax Reform Proposal, Part B Revenue to Fund Local Property Tax Relief (adapted from p. 5 of Pennsylvania 21st Century Tax Project) A number of ways have been looked at to reduce property taxes such as gaming and consumption taxes. The PA21 project looked at raising the state Personal Income Tax as a more progressive alternative to local property taxes. Residential property & personal income taxes (e) Property tax relief proposed by Governor Rendell March 25, 2003 $(1,500) $(1,500) Additional increase personal income tax rate from 3.1% to 3.75% $1,537 $1,373 $164 Total -- Residential property & PIT $37 $(127) $164 Net change in taxes $1,109 $679 $430 Note: Highlighted lines were already modified in the December 2003 FY2003-04 budget agreement. The increase in the PIT rate was actually to 3.07% not 3.1%. a. For a complete description of the complex CNI base broadening proposal, see Chapter IX, Pennsylvania 21st Century Tax Policy Project, at page 96. b. Governor Rendell's March 25, 2003 Plan for a New PA proposed an increase in PA R&D Tax Credits from $15M to $45M. The December 2003 FY03-04 budget agreement increased R&D Tax Credits from $1M to $30M. c. The number on the chart reflects the increase in the Telecommunications Gross Receipts Taxes proposed in Governor Rendell's March 25, 2003 Plan for a New PA. This proposal was adopted, with some modifications, as part of the December 2003 FY03-04 budget agreement. d. PA21 Proposal assumes PA General Fund expenditure level of $22.0 billion, not including property tax relief. e. In his March 25, 2003 Plan for a New PA, Governor Rendell proposed a $1.5 billion reduction in local school district property taxes funded in part through an increase in the PA PIT and in part through an expansion of legalized gaming in Pennsylvania. The Governor's plan also included additional PIT and other tax increases to fund increased spending for education and economic development. The chart above illustrates a scenario in which property tax relief would be funded exclusively through an increase in the PIT.
SOURCE Pennsylvania Business Roundtable; Pennsylvania AFL-CIO