Onorato’s Economic Plan: Some Good Ideas, Some Bad Ideas

Pennsylvania Governor Candidate Dan Onorato outlined his economic development proposals yesterday. He has some good ideas in there, but a lot of the same old handouts for special interests.

Business Tax Reform: Onorato proposes cutting the Corporate Net Income Tax (CNIT) from 9.99% – 2nd highest rate in the US – to 7.99%, “or lower.” Onorato would also eliminate the cap on Net Operating Losses and indicates support for moving to a single-sales factor. Onorato also supports completing the phase-out, i.e. eliminating, the Capital Stock and Franchise Tax (CFST).

However, Onorato also wants “business tax changes to fully pay for these reforms”. While there are a number of specialized tax credits that could be eliminated, like the Film Tax Credit, that doesn’t seem to be the route Onorato wants to go, proposing new tax credits and expanding some like the R&D tax credit (see below). I would guess that Onorato means he wants mandatory combined reporting, which is not a good step in tax reform. The best way to “pay for these reforms” is to get the economy growing again. The CNIT dropped 18% last fiscal year, and is 16% below that so far this year, far greater revenue losses than a cut in rates – even assuming a static model.

Regulatory Reform: Onorato wants greater transparency in the regulatory process, and greater efficiency, which has certainly been a problem in Pennsylvania.

P3s in Transportation: Onorato embraces public-private partnerships in transportation. He also call for increased state funding and getting more federal funding (note that the same taxpayers foot the bill), but fails to call for spending reforms.

Transparency: Onorato supports far greater transparency in economic development, including “publishing an annual report to the General Assembly and the public that details all forms of state spending on economic development,” upgrading Investment Tracker with “information about actual job creation, wages and benefits; industry sectors; and location.” With any luck, the level of transparency Onorato wants may be achieved even before he takes office.

Phasing in of electric rates: This is not a well thought-out idea, and many of the options Onorato wants to encourage are already available.

New Welfare Programs: Onorato proposes a state Earned Income Tax Credit, which is a better tool for delivering aid to low-income residents than current welfare programs or minimum wage laws, but should not be simply another addition to these. He also proposes a tax credit for job creation, which is well-intentioned, but would not actually create any jobs that would not otherwise exist.

Lots of politically selected corporate welfare: Unfortunately, Onorato continues to suggest government-directed economic development subsidies are the way to improve Pennsylvania’s economy. While calling for an end to WAMs, he proposes an array of spending programs that are just like WAMs – only at the discretion of the governor – and tax carve-outs:

  • Tax breaks for “high growth companies”
  • “Adequate funding for Small Business Development Centers and economic development organizations”
  • “expand the Pennsylvania Technical Assistance Program”
  • “Onorato will launch a Domestic Business Outreach Program”
  • “Increase venture capital investment in Green companies and other emerging sectors”
  • Create a new state “micro-lending” program”
  • A “$25 million per year competitive funding pool within four years to serve as a match for industry-sponsored research”
  • “Restoring” the Research and Development Tax Credit

Pennsylvania’s tax burden is among the highest in the nation, and that is driven by spending – in fact Pennsylvania ranks second of the 50 states in economic development spending.  Mere tax reform, without lowering the overall tax burden, while adding new corporate welfare spending won’t get Pennsylvania’s economy growing ate.