GOP BLOCKS DEMOCRATS’ PLAN FOR LOWER, FAIRER BUSINESS TAXES
HARRISBURG, November 3, 2005 – On a straight party-line vote Wednesday evening, Senate Republicans rejected a proposal offered by state Senator Vince Fumo (D-Philadelphia) that would have reduced Pennsylvania’s Corporate Net Income Tax to its lowest rate in 36 years, and would have closed a loophole that many large companies currently use to escape paying state taxes.
Fumo’s measure reflected the recommendations of Gov. Ed Rendell’s task force, made up largely of businessmen, that examined various options for state business tax reform. It would have dropped the CNI rate from 9.99 percent to 7.99 percent, and would have required businesses to report their income in such a way that they could not take advantage of the so-called Delaware holding company loophole.
Fumo said his plan, which embodies the proposal that Rendell offered earlier this year and was supported by the entire Senate Democratic caucus, was pro-business because it treats all corporations the same.
"It’s pro-all business, not just pro-those businesses that have found the loophole and gone to Delaware to set up holding companies," he said. "This takes care of small corporations that are not as sophisticated and can’t afford to do the tax accounting and address the other problems necessary to set up Delaware corporations.
"It lowers the CNI for every corporation, not just the biggest in Pennsylvania that have been dodging the tax," Fumo added.
After defeating Fumo’s amendment on the Senate floor, Republicans then passed HB 515, which makes a minor cut in the CNI to just 9.59 percent, and favors some companies over others by allowing them to continue avoid Pennsylvania taxes.
In Fumo’s opinion, HB 515 repeats the same mistake that was frequently made during the Ridge Administration – taking a piecemeal approach to improving Pennsylvania’s business climate. Former Gov. Tom Ridge supposedly made reducing business taxes one of his chief priorities, but by the end of the eight-year Ridge-Schweiker Administration, with a Republican controlled legislature, Pennsylvania still had the third-highest corporate net income tax rate in the country.
Fumo said it was clear that GOP Senators were more concerned about keeping some members of their business constituency happy rather than modernizing Pennsylvania’s outdated tax system.
"We want to lower the corporate net income tax, but we want to lower it for everybody. We don’t want the tax dodgers to be rewarded for going to Delaware to set up phony holding companies," Fumo said.
Fumo’s amendment would have closed the Delaware loophole by requiring a tax accounting method known as consolidated reporting, something that 17 other states have already adopted.
While Fumo’s proposal would have been revenue neutral – resulting in the same amount of tax coming to the state treasury by lowering the rate but forcing all companies to pay – the GOP’s bill will cost the state $418 million in the next fiscal year by leaving the loophole open and making other tax changes. Fumo called that future revenue loss irresponsible in this time of economic uncertainty, and said he hoped Rendell would veto the bill.
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