Turzai and Reed move to override Governor’s veto.
Say job creation bill has necessary support in House and Senate
HARRISBURG — Rep. Mike Turzai (R-Allegheny) and Rep. Dave Reed (R-Indiana County) today announced they are moving forward in an attempt to override Gov. Ed Rendell’s veto of a bill that would help turn around Pennsylvania’s economy.
House Bill 515 would renew economic opportunity in Pennsylvania by removing barriers to job creation and protecting Pennsylvania jobs from outsourcing.
In a letter addressed to Speaker of the House John M. Perzel (R-Philadelphia) and House Majority Leader Sam Smith (R-Jefferson County), Turzai and Reed pointed to the failed economic policies of the current administration, saying, “between January 2003 and January 2006, Pennsylvania has lost approximately 60,000 manufacturing jobs, according to the Center for Workforce Information and Analysis.
“Governor Rendell’s attempt to ‘tax and subsidize’ economic growth has failed,” they wrote. “To cover his economic failure, Governor Rendell has increased funding for the Department of Public Welfare by more than $1 billion.
“Whatever his strategy, the outcome of this administration’s policies has been a decrease in family-sustaining jobs and an increased dependency on government programs such as welfare. Due to the governor’s job-crushing economic policies, Pennsylvania is not participating in the economic recovery occurring throughout the United States.”
“Enacting the tax relief included in House Bill 515 will send a message now to job creators around the globe that Pennsylvania once again will be open for business,” Turzai said. “Pennsylvania can’t afford to wait for this modest tax relief. Pennsylvania workers should banking pay checks, not cashing welfare checks.”
Turzai and Reed called on House leadership to take action to turn Pennsylvania’s economy around by moving forward with efforts to override the governor’s veto.
According to the Representatives, House Bill 515 will result in family-sustaining jobs, an increased tax base for schools and communities, as well as investment in the jobs of the future.
“By passing House Bill 515, the Legislature endorsed a new path for Pennsylvania’s future – a path of tax relief and private investment, which history shows will lead to economic opportunity and prosperity,” the letter read.
“We strongly encourage you to help lead Pennsylvania down that new path by moving forward with an effort to override the governor’s veto of HB 515,” the letter read.
Rendell vetoed House Bill 515 on Dec. 23. Thirty-three Senators and 135 members of the House must support the bill to overturn the governor’s veto. The bill received support from 35 Senators and 183 members of the House upon final passage.
“Without employers, there would be no jobs in Pennsylvania,” Turzai said. “This economic stimulus bill will help create and retain the family-sustaining jobs that are the foundation of strong communities across Pennsylvania.”
“The current system of burdensome taxes that penalize economic growth is driving jobs out of Pennsylvania,” Reed said. “We need to protect the jobs we have and remove the barriers in the system that stifle new job creation.”
The following areas are addressed in the legislation.
Removing Barriers to Job Creation
The current Corporate Net Income (CNI) formula taxes businesses on three factors: in-state payroll (20 percent of liability), in-state property assets (20 percent), and in-state sales (60 percent). Under the current formula, an employer’s taxes go up every time it hires another worker or expands the physical property of its business. House Bill 515 would phase out the existing formula and base the CNI tax solely on in-state sales.
The percentage of tax liability based on in-state sales will rise from 60 percent to 100 percent over the next four years, phasing out the old CNI formula in favor of a Single Sales Factor formula.
“The old formula penalized job creators with higher taxes every time they hired new employees or expanded their plant,” Reed said. “This legislation removes that penalty and encourages businesses to grow and expand right here in Pennsylvania. We are removing barriers that stifle job creation.”
House Bill 515 was introduced to combat what Reed called a “stacked deck” against Pennsylvania job creators.
Encouraging Investment and Job Growth
House Bill 515 also would increase the cap on carry-forward net operating losses from $2 million to $10 million over the next four years.
Currently, Pennsylvania caps the amount of loss a company may carry forward from one year to the next at $2 million a year to be used against a profit in any one future tax year. This cap puts Pennsylvania at a disadvantage as compared to other states, and is part of a burdensome tax climate for corporate employers.
Under House Bill 515, the cap would increase to $5 million in 2007, $7.5 million in 2008, $10 million in 2009, and $10 million or 75 percent of available losses, whichever is greater, after that.
“Forty-five other states allow for an unlimited carry-forward,” Turzai said. “By raising the cap, we will level the playing field for Pennsylvania job creators. They can now engage in fair competition with businesses in the other 45 states.”
Net operating loss carry-forward provisions allow corporate employers to use a business loss to offset income earned in future tax years in order to adjust their corporate net income tax liability. The federal government and 47 states allow for the use of net operating loss carry-forward provisions.
Of those states that permit net operating loss carry-forward provisions, only Pennsylvania and New Hampshire limit the amount of loss that can be used to offset income in each future tax year.
Net operating loss carry-forward provisions are important to corporate employers that experience cyclical downturns, especially those in manufacturing. The provisions are particularly important for startup firms, which almost always experience losses in their early years and struggle under the burden of taxes as they begin to establish themselves and show progress.
According to the Pittsburgh Technology Council, an average startup technology company typically takes five to seven years to show a profit.
State Personal Income Tax Reduction
House Bill 515 would decrease the state personal income tax from 3.07 percent to 3.05 percent over the next two years.
“When taxpayers and employers keep more of their own money, they spend and invest more of their own money and that drives Pennsylvania’s economy forward,” Reed said.
History of House Bill 515
House Bill 515 was passed by the House on May 10. The bill was amended by the Senate to include additional components of the Keystone Manufacturing Initiative (KMI) economic growth plan, a series of bills proposed by Reed, Turzai and other House Republicans aimed at growing Pennsylvania’s economy. The bill was returned to the House, which passed the measure with amendments. The Senate concurred with the House version of the bill.
House Bill 515 is part of a 16-bill package of legislation known as the Keystone Manufacturing Initiative (KMI). KMI bills are designed to protect Pennsylvania’s manufacturing sector, which directly employs 685,000 Pennsylvanians and generates over $64 billion in economic activity each year.
The KMI focuses on six key economic areas, including business tax structure reform, affordable health care, tort reform, workers’ compensation reform, unemployment compensation reform, and regulatory reform.
House Bill 515 also is part of the House Republican Playbook for Progress plan to increase fiscal accountability, promote personal responsibility and expand economic opportunity.
Contact: Dan Massing, (717) 772-9845