This paper focuses on the details of one part of this story: the cuts in corporate taxes in Pennsylvania since 2002 that have reduced revenues by what is now $4.2 billion per year and have created a tax system that is among the most unfair in the country.
Pennsylvania’s tax–cutting, shaped by the corporate-sponsored narrative, has taken a variety of forms. Under both Republican and Democratic governors, we have entirely eliminated one of our two major taxes on corporations, the Capital Stock and Franchise Tax (CSFT). We have also allowed businesses to lower their reported profits subject to the largest remaining corporate tax—the Corporate Net Income (CNI) tax. And we have continued to give multi-state corporations free rein to cook their books and exploit corporate tax loopholes to their reported income subject to the CNI. The result is that 73% of corporations that do business in Pennsylvania pay no corporate income tax at all.1
This policy brief updates estimates of the cost each year to the Pennsylvania budget from corporate tax cuts since 2002-03 and shows how this has eroded the contribution of corporate taxes to state General Fund revenues. The brief closes by proposing a solution that eliminates the tax loopholes that allow corporations to shift profits from Pennsylvania to other states: combined reporting. Combined reporting has already been adopted by 28 states and the District of Columbia. We propose going even further and propose limiting corporations’ ability to shift reported profits overseas by adopting worldwide combined reporting.