Billions in surplus have Pa. lawmakers thinking business tax cut

Lawmakers voted overwhelmingly for a bill that would reduce the corporate net income rate from 10% to 9%, and if the state's revenues are sufficient, down to 8% by 2025.

The Pennsylvania state Capitol

The Pennsylvania state Capitol is seen in this file photo. (Tom Downing/WITF)

Hundreds of millions of dollars in business profit tax cuts passed the Republican-majority state House on Tuesday, and Democratic Gov. Tom Wolf said he was optimistic a final deal can be struck in the coming months.

Lawmakers voted overwhelmingly for a bill that would reduce the corporate net income rate from 10% to 9%, and if state’s revenues are sufficient, down to 8% by 2025.

If enacted into law, the measure would cost about $128 million in 2022-23, as it would not cover the entire 12-month period. But in the following years it will reduce state revenues by $400 million to $450 million annually, House Republicans projected.

The lead sponsor, Beaver County Republican Rep. Josh Kail, called it “a measured approach that rewards growth and also allows us to have more cuts without further legislation.”

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The bill approved by the House by a vote of 195-8 would make future corporate net income tax cuts contingent on state budget surpluses of at least $500 million.

Pennsylvania state revenues are exceptionally strong this fiscal year. The most recent Revenue Department figures show the year-to-date general fund collections are about $2.7 billion — or 8% — above projections through March. Wolf said at the Capitol on Tuesday that the surplus for the month of April alone is likely to approach $1.5 billion when finalized in the coming days.

Wolf’s press secretary, Beth Rementer, said the “extra money” coming in during April alone is enough to both fund a corporate net income tax cut to 8% and the additional money the governor wants for education this year. “The governor looks forward to budget negotiations that accomplish both,” Rementer said in an email.

Pennsylvania’s state budget this year is $40 billion, with billions in federal money in reserve along with a rainy day fund approaching $3 billion.

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The size of state tax cuts is currently limited, a condition of Pennsylvania accepting federal coronavirus recovery funds.

Rep. Napoleon Nelson, D-Montgomery, said there had been talk of even larger cuts, along with other changes that would bring more tax revenue from companies that do business in multiple states.

“There’s so much more that we can do, if we actually allow the agreement to happen,” Nelson said. “Let’s actually provide businesses with what they need so that they can come to Pennsylvania.”

The corporate net income tax rate, technically 9.99%, has been at that level since 1995.

The bill was sent to the state Senate, where Republican majority spokesperson Erica Clayton Wright said a corporate net income tax cut has bipartisan support “and is a component of the overall strategy” to boost Pennsylvania’s economy. She said the House-passed bill “will be part of those discussions” with Wolf and the House.

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