Pittsburgh Post-Gazette

GOP wants to cut Pa. income tax rate

Tuesday, April 15, 2008

By Tom Barnes, Post-Gazette Harrisburg Bureau

HARRISBURG -- House Republican legislators are proposing a four-point program for spurring the state's economy, the most notable being a modest reduction in the state's personal income tax rate.

In January 2004, at the end of Democratic Gov. Ed Rendell's first year in office, the rate was raised to the current 3.07 percent, up from the previous 2.8 percent. Mr. Rendell initially was seeking a 3.75 percent rate.

Yesterday, Republicans led by Rep. Mike Turzai of Bradford Woods called for trimming the rate back to 2.935 percent when the new fiscal year starts July 1.

Such a reduction would cost the state about $450 million in revenue, but Republicans said that can be offset by a surplus of about $500 million that the state is expecting at the end of the current fiscal year June 30.

Putting more money back into the hands of citizens will spur the economy through additional spending, they argued.

"Rolling back the PIT would benefit virtually every family in this state," said Rep. Tom Quigley of Montgomery. It also would help many smaller businesses because they pay taxes based on that rate instead of the corporate net income rate of 9.99 percent.

The GOP is likely to seek a vote on the tax cut in late June, when legislators get serious about adopting the new 2008-09 budget. However, Rendell administration officials argued that Republicans picked the wrong target for reduction because Pennsylvania already has the second lowest income tax rate in the nation.

The second part of the GOP stimulus plan includes removing the current $3 million cap on something called the Net Operating Loss Carryforward program.

Currently, a company can carry forward no more than $3 million in losses from one fiscal year to another, as a way of limiting the taxes it pays in the profitable year. Mr. Turzai said it would benefit businesses if they could bring forward all their losses from a bad year as a way of trimming their taxes in a good year.

Also, he wants a company's Corporate Net Income Tax payment to be based 100 percent on the amount of sales the firm had in a given fiscal year. Currently, the tax burden is based on sales, the size of a firm's payroll and the value of a firm's physical equipment and other assets.

The GOP lawmakers also want to cut the 6.5 percent gross receipts tax on consumers' electric bills by 50 percent over a five-year period.

Republicans proposed some spending cuts to make possible the tax reductions. They suggested eliminating "opportunity grants,'' funded by the Department of Community and Economic Development, which Mr. Rendell distributes for legislators' pet projects. GOP lawmakers also said there is wasted spending in welfare payments for low-income people's Medicaid costs and for cash payments made under the Temporary Aid to Needy Families program.