Gov. Wolf’s request to reduce tax credits by $100 million is causing a stir in the legislature. According to a Capitolwire story (paywall), Republicans raised objections on several fronts, which may spell the end for the governor’s proposal.
We wrote about the administration’s tax credit plan last month, calling it a good first step but expressing concerns about the inclusion of educational tax credits along with other economic development and research tax credits. My colleague James makes a convincing case for a distinction between these programs. To summarize, tax credit scholarships are not corporate welfare. They are open to all businesses; save taxpayer money; require contributions to scholarship programs; and serve students, not special interests.
Under Wolf's approach, tax credit funding would be reduced as determined by certain metrics, which are at this time unclear, but will ultimately be decided by administration officials. Remaining credits would be allocated by the executive branch and not the legislature—potentially putting school scholarships in jeopardy.
Should Pennsylvania reduce legitimate corporate welfare, such as subsidies to horse breeders and tax credits to Hollywood filmmakers? Absolutely. But it would be a mistake to eliminate crucial scholarship programs at the same time.
The case against corporate welfare is clear: No one in state government should be picking winners and losers. Why should a film production company have access to taxpayer subsidies while a small business owner is taxed out of the state?
Government favoritism just doesn’t work. It puts too much economic power in the hands of public officials, which causes distortions in the economy and leads to fewer economic opportunities. To create a fairer economic environment for all, the General Assembly could eliminate special subsidies and use the available revenue to lower the corporate tax rate on all businesses.
Using corporate welfare reductions to cut taxes during Pennsylvania’s fiscal crisis may seem unrealistic. But if lawmakers adopted reforms outlined in our policy brief, Embracing Innovation in State Government, they could balance the budget, stimulate the economy, and preserve a lifeline for students in need.