Op Ed: For Job Creation, The Spotlight Must be on Tax Reform

Each time a film like “Rocky,” “Witness” or “The Sixth Sense” used Pennsylvania as a backdrop, local painters, hardware suppliers and restaurants experienced such a spike in revenue that the legislature funded the state’s Film Tax Credit to lure even more production.

Others soon followed. “The Village,” “Marley & Me,” and “Transformers: Revenge of the Fallen” all used Southeastern Pennsylvania as a setting to take advantage of the 25 percent tax credit.  Even “The Sopranos” shot in Bethlehem.  From 2002 to 2008, TV and film production almost doubled.   And that, in just the last three years, generated $768 million in direct spending and $1.2 billion in economic activity, including locally purchased materials.

It doesn’t take a stock broker from “Trading Places” (shot in Philadelphia) to understand how tax reform, incentives and streamlining regulations can create good jobs.  Balancing a budget is critical to our financial health, but the only way to keep revenues flowing is job creation. 

The Film Tax Credit is proof that tax policy matters; we must learn the lesson it teaches and work to remake our entire tax system into a job-enhancer.  

With a Corporate Net Income Tax (CNIT) of 9.99 percent, Pennsylvania’s corporate tax is the second highest in the nation, which puts our employers at a significant competitive disadvantage against companies in other states.  Businesses have little incentive to start-up, build, re-locate and expand here.

The legislature has gotten the message. To start with, we are phasing out and, by 2014, eliminating the Capital Stock and Franchise Tax, but we must reform the crippling the crippling CNIT.  We have funded tax credits for Job Creation and Research and Development in this budget, and continued investing in the Ben Franklin and Green House entrepreneurial programs.

We can go further in tax reform by changing what we tax.  Pennsylvania’s CNI tax is based 90% on a company’s sales and 5% on both payroll and property.  That tax on payroll is essentially a tax on jobs. We are punishing companies by raising their taxes every time they hire a new worker.  This is an example of government punishing success.  Our tax structure should encourage – not discourage – employers to hire more workers.

By taxing an employer’s property, the state is also deterring business expansion and driving current and potential employers away.  Whenever a business expands its operations or purchases new equipment, its tax burden increases; this discourages companies from expanding and discourages companies from other states and nations from settling here.

At the very least, we must base our CNI tax solely on an employer’s sales.

Then there’s the Net Operating Loss.  This allows companies to use losses in one year to offset tax liabilities in future years, a standard tax allowance.  But Pennsylvania is one of only two states that cap the amount an employer may carry forward from one year to the next.  Again, this puts Pennsylvania at a competitive disadvantage and must be changed.

Many people believe it’s impossible to improve laws that impact an economy as large as Pennsylvania.  But just two months ago, we brought greater fairness to a civil court system that destroys jobs.  In the past, a defendant found 10% liable in a civil lawsuit could be forced to pay 100% of the damages if the others cannot pay.  The Fair Share Act changed that.

For defendants found less than 60% responsible, the percentage of the total award they must pay cannot exceed their degree of responsibility.  This new law should prevent lawyers and defendants from searching for vulnerable defendants for a financial payday, and that will protect job-creators.

Many thought this change could never come.  But it did.  And you don’t need to believe in Hollywood-style endings to know that reforming our tax structure will create the jobs to improve Pennsylvania.