REPORT: Ending Pennsylvania’s Special Interest Tax Breaks Makes Gov. Corbett’s Education Cuts Unnecessary

Gov. Tom Corbett (R-PA), as I outlined earlier, has released a budget that places the brunt of reducing the state’s $4 billion deficit onto the backs of public workers (including teachers), students, and those in the state who depend upon public services. At the same time that he’s proposing $1 billion in cuts to public education, Corbett is trying to cut corporate taxes.

Corbett has made his priorities crystal clear, but his gutting of public education is by no means necessary. CAP Senior Fellow Donna Cooper suggested four ways Pennsylvania could raise revenue by ending special interest tax breaks:

CLOSE CORPORATE TAX LOOPHOLES: Currently, 7 out of every 10 companies incorporated in Pennsylvania don’t pay corporate taxes in the state. A provision of the tax code known as the “Delaware loophole” allows corporations to shift income out of the state and into lower-tax jurisdictions. Closing corporate tax loopholes could raise the state $450 million in annual revenue.

TAX GAS FRACKING: Pennsylvania is the only state in the nation’s top 15 gas producers that doesn’t levy a tax on the environmentally destructive “fracking” industry. A properly structrured tax on the industry could raise more than $400 million annually.

END THE SALES TAX GIVEAWAY: Pennsylvania actually pays companies a bonus for turning in the sales taxes they’ve collected from their customers in a “timely” manner. The tax break primarily benefits companies with sales in the state exceeding $1 billion. Eliminating this practice (which gives no benefit to consumers) would save the state $76 million annually.

TAX SMOKELESS TOBACCO PRODUCTS AND CIGARS: Pennsylvania is the only state in the nation that doesn’t tax smokeless tobacco products and one of only two that doesn’t tax cigars (the other is Florida). Extending the state’s tobacco tax to these products not only makes sense from a public health perspective but could raise almost $50 million annually.

And here are two more:

END THE ONLINE SALES TAX EXEMPTION: Pennsylvania does not levy a tax on online sales, giving out-of-state vendors a leg up on those based in the state. This exemption costs Pennsylvania $62 million annually.

INCREASING TAXES ON NON-WAGE INCOME: Increasing the tax on non-wage income, such as capital gains and dividends, which is largely earned by the wealthy, to just 4 percent would raise more than $350 million annually, according to the Pennsylvania Budget and Policy Center.

These revenue-raising measure would make Pennsylvania’s tax system more equitable and would raise more than enough money to cover the cost of Corbett’s proposed education cuts. Pennsylvania could also look at its personal income tax system, which is one of the most regressive in the nation. Pennsylvania currently has a flat-rate income tax, instead of a graduated progressive tax. At the moment, the poorest 20 percent of Pennsylvania residents pay a state tax rate of 11.2 percent, while the richest one percent of residents pay just 3.9 percent.