After the recent decision by Amazon not to put an HQ2 location in Pennsylvania, business owners and taxpayers all across the state are asking the same questions:
What barriers to entrepreneurship remain in Pennsylvania today? How can we break out of below-average economic growth? This blog, the second in our series on the 2017-18 legislative session, answers these questions by focusing on the state of Pennsylvania's business climate.
Recent rankings indicate that Pennsylvania remains a harsh climate for new investments and businesses:
- ALEC-Laffer State Economic Performance: 35th
- U.S. News and World Report Best States: 38th
- WalletHub Best State to Start a Business: 46th
- Fraser Economic Freedom Index: 26th
- Tax Foundation State Business Climate Index: 34th
The chief culprits? High tax rates and onerous regulation have continued to generate lackluster economic growth.
In 2017-18, state lawmakers unsuccessfully promoted legislation to lower state tax rates. However, Pennsylvania families benefited from tax cuts in the federal Tax Cuts and Jobs Act (passed in December 2017). Federal tax relief resulted in businesses reinvesting in Pennsylvania and rising wages and benefits for employees. Americans for Tax Reform maintains a running list of “tax reform good news,” for each state, which tells the stories of businesses passing their tax savings on to employees. Their Pennsylvania page identifies at least 50 different examples, including four banks voluntarily raising their starting wages.
The Independent Fiscal Office estimates federal tax reform is responsible for $6-7 billion injected into Pennsylvania's economy, and adds that consumers have benefited from lower utility bills.
These outcomes make a strong case for sweeping tax reform on the state level. After all, Pennsylvania still charges one of the highest corporate income tax rates in the nation and caps the net operating loss tax deduction that industries with cyclical incomes, like steel, depend on.
Taxes aren't the only thing choking Pennsylvania's economy. We need serious regulatory reform within the next two years. To address the commonwealth's harsh business climate, the 2017-18 House State Government Committee advanced a package of reforms to reduce Pennsylvania's regulatory burden:
- House Bill 1959, sponsored by Rep. Greg Rothman, creates an online tracking system for state permits to cut down the countless hours entrepreneurs spend navigating our labyrinthine permitting process.
- House Bill 1792, sponsored by Rep. Kerry Benninghoff, gives the General Assembly the ability to initiate the repeal of existing regulations through a concurrent resolution. Under current law, the legislature can only prevent the implementation of new regulations through a resolution.
- House Bill 209, sponsored by Rep. Kristin Phillips-Hill, establishes an Independent Office of the Repealer to review and reduce or modify existing regulations.
- House Bill 1237, sponsored by Rep. Dawn Keefer, requires the General Assembly to approve any “economically significant” regulation. Sen. John DiSanto introduced a similar proposal in the Senate.
From the natural gas boom, to growing tech and health care sectors, there are enormous opportunities for economic growth in the next two years. Pennsylvania's success will largely depend on whether lawmakers can tackle our harsh tax and regulatory climate.
To read other 2017-18 session recap blogs, click on the images below.