By Chris Comisac
Bureau Chief
Capitolwire
HARRISBURG (March 2) – Gov. Tom Wolf will unveil his state budget proposal on Tuesday, but a group that expects to be impacted by the governor’s proposal urged him to keep them in mind as he pursues his spending plan.
“We’re here just trying to remind the governor … be careful when you raise that personal income tax, because small business owners pay that tax,” said Rep. Stephen Bloom, R-Cumberland, during a Monday morning event in the state Capitol to unveil a package of bills aimed at simplifying the state’s current tax code.
Rumors circulating through the state Capitol suggest Wolf intends to propose a hike of the state’s Personal Income Tax, as well as a broadening and increase of the sales tax, using much of the money to reduce Pennsylvanians’ property tax burden. As a candidate, Wolf stated he wanted to create a fairer tax system, which included a potential PIT hike – CLICK HERE to read more about that.
“The governor says he wants to improve the business climate in Pennsylvania by lowering the Corporate Net Income Tax, but if he opts to raise the Personal Income Tax that will be devastating to most small businesses,” said Kevin Shivers, executive state director of the National Federation of Independent Business/Pennsylvania, indicating the need to address the current tax code, not raise taxes.
Last week, Wolf announced that as part of his state budget – and in an attempt to boost the state’s economy – he would seek to drop the state’s corporate net income tax by half over the next two years, continue the phase-out of a tax on business assets, all while aiming to boost tax collections from corporations through mandatory combined reporting.
The belief that Wolf’s budget will boost the state’s economy was echoed by Senate Democrats – who said they did get a chance to talk with Wolf about his plan – during a Monday morning briefing with state Capitol reporters.
“A PIT increase would certainly impact those small businesses that pay the PIT through their business structure, but I think the offsetting evenness of the overall plan – as a comprehensive plan – addresses that,” said Senate Minority Leader Jay Costa, D-Allegheny, who has gotten a bit of a look at the governor’s proposed plan. “At the end of the day, it could benefit them.”
“All of this has to be looked at, again, comprehensively,” agreed Sen. Vince Hughes, D-Philadelphia, the minority chairman of the Senate Appropriations Committee. “It’s not this piece over here and this piece over there – All of it in a comprehensive fashion.
“If there are increases in certain areas, are they offset by a reduction in property taxes, putting more money in people’s pockets, gives them more money to spend? Is there an offset in new job creation with jobs paying a sustainable income?”
“The bottom line will do well for every Pennsylvania citizen,” said Hughes.
Those sentiments were not shared by Republican lawmakers who on Monday said if the governor is interested in boosting the economy and creating jobs, helping small businesses and not hiking their taxes was the best way to do that.
“We talk about developing the economy of Pennsylvania – let’s not forget that it’s small business owners that create 65 percent of the jobs” in Pennsylvania, said state Sen. Mike Folmer, R-Lebanon. “So any way we can help eliminate any type of obstacle or unfair tax practices for that small businessperson is going to help that small businessperson compete effectively.”
Shivers was even more blunt: “High costs plus complexity equals cutbacks; really that’s what’s at stake here.
“Tomorrow we’re going to learn from the governor his spending and revenue plan, what his proposals are going to be and how they’re going to impact businesses,” Shivers said. “We’ve heard a lot of rumors about what the tax rates are going to be – tax rates are a problem, but it’s the complexity of our tax system that make those rates that much more damaging, particularly to small job creators.”
Shivers said Pennsylvania has been experiencing historic lows in small business start-ups, and any tax hikes and continued complexity – or additional complexity – won’t help that situation.
“There are fewer people deciding to risk their family capital or risk any type of financial investment when starting a business,” said Shivers, noting that “small business churn” – the creation and closing of small businesses which is considered a measure of entrepreneurial activity and a gauge of the economy’s vibrancy – has been low in Pennsylvania.
To help small businesses, the lawmakers said they have introduced in both the House and the Senate a package of bills, similar to ones introduced last session (but which didn’t win General Assembly approval), to make state tax policy simpler, and in some cases mirroring current federal tax policy. The lawmakers said the proposals have a minimal impact upon the revenue collected by the state, but they would affect when the state collects that revenue, allowing businesses to defer some of their tax burden with the state recouping that deferral over time.
“The IRS is a much more friendly organization to work with, in many respects, than Pennsylvania,” said Warren Hudak, owner of the small business accounting firm Hudak and Co. and a member of the National Federation of Independent Business Leadership Council.
The three bills would:
• allow like-kind exchanges of real estate and assets, such as machinery or equipment, which means businesses wouldn’t have to pay a tax penalty when property is exchanged for similar property;
• allow cash-strapped businesses to offset losses with income generated by the sale of an asset; and
• extend bonus depreciation deductions to the state’s S-corporations — sole proprietorships and partnerships — currently ignored by a federal version of the incentive.
“Pennsylvania businesses need to keep two sets of books – one for the IRS and one for the State of Pennsylvania,” said Hudak, indicating the proposed bills would help to improve that situation.
Added Hudak: “We’re not asking for tax relief, we’re not asking to not pay our fair share, we’re just asking for a simpler tax code.”
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An increase in the PIT rate would be intolerable considering Wolf has not addressed the unethical pension increase that went into effect years ago.