In Growth-killing Taxation, We're First Among The Worst

Posted: March 07, 2012

HERE'S a headline that's sure not to boost investment and job creation in Pennsylvania: "Wyoming First, Pennsylvania Worst In Business Taxes."

It's a recent headline on the front page of Investor's Business Daily, read nationally by precisely the people who make the decisions about the location of job-creating capital investments and business expansions.

"An executive looking for a place to locate his company might do well to consider Wyoming," begins the article. "That state is the most business-friendly in the country, at least when it comes to taxes, according to a new study."

The study, "Location Matters," published by the Tax Foundation, states that when all the taxes are factored in, Wyoming's rate of taxation on businesses is less than half the national average.

"Pennsylvania, meanwhile," reports Investor's Business Daily, "wins the double distinction of imposing the heaviest tax burden on its businesses, with an overall effective rate that's 45% above the national average."

After Wyoming, the five most business-friendly states, ranked from the least burdensome in terms of business taxes, are South Dakota, Georgia, Nevada and Ohio.

The five least business-friendly states, after Pennsylvania, with the most burdensome in taxation at the top of the list, are Hawaii, West Virginia, Kansas and Rhode Island.

The survey considered the combined impact of state taxes on corporate income, sales, property, unemployment, gross receipts and so on.

Not surprisingly, since we discourage what it is we raise taxes on, a supplement by Investor's Business Daily to the Tax Foundation study, considering tax rates on both new and existing businesses, found that the states with the lowest taxes on businesses produced more new jobs in the current economic recovery than the states with the highest tax burdens.

"In fact, the five states with the lowest tax rates on both new and existing companies saw jobs climb an average 1.14% since the recession ended in June 2009," reports Investor's Business Daily. "In contrast, the five states with the highest business-tax rates . . . had payrolls grow an average of just 0.75%. That's a 52% difference."

Additionally, the Tax Foundation study found that all businesses within each state aren't treated equally, with targeted tax breaks, political preferentialism and various subsidies creating what Investor's Business Daily calls a "startling" disparity in tax burdens.

Among them: "Louisiana offers so many incentives for new R&D companies that they face an effective tax rate of -10.5%. But Louisiana doesn't extend this generosity to new distribution centers, which face a sky-high 50% tax rate. Pennsylvania, likewise, makes life easy for manufacturers, offering them tax rates as low as 6.1%, among the lowest in the country. But Pennsylvania is most unkind to other types of business, with tax rates that are the highest, or very close to the highest, for every other industry examined by the study."

Bottom line: We're being held back in Pennsylvania with an anti-jobs, anti-business, anti-growth tax system that's confiscatory, discriminatory, duplicitous and counter-productive.

Ralph R. Reiland is an associate professor of economics and the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh.

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