Business-Labor Group Recommends Issues and Process to Guide State Tax Reform Debate

PA21 Report Illustrates How Changes in Tax Structure Can Improve State

Economic Competitiveness and Tax Fairness



Apr 19, 2004, 01:00 ET from Pennsylvania Business Roundtable from ,Pennsylvania AFL-CIO

    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
    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