NCPA - National Center for Policy Analysis


January 21, 2005

Pennsylvania's Business Tax Reform Commission (BTRC) has issued a report outlining changes to the state's tax system, but it will do little to help small business and enhance state competitiveness, says Grant Gulibon of the Commonwealth Foundation.

The ineffectiveness of the commission was ensured when it was handicapped by three restrictive mandates, says Gulibon:

  • The commission required tax code changes to be revenue neutral; for example, while the corporate net income tax rate was reduced by 30 percent, small businesses, which often drive new job creation, were burdened by higher taxes.
  • The commission did not incorporate dynamic modeling; consequently, the recommendations do not account for the changes in behavior stemming from changes in tax rates.
  • The commission did not examine state government spending policy; the state cannot adequately reform taxes of any kind until it first addresses its bloated budget.

Gulibon says that over the last few decades, the state government has grown into areas that are outside of its core responsibilities, choking off private sector resources better used for investment and job creation:

  • Total Pennsylvania state government spending grew faster than inflation in 10 of the last 13 budget years.
  • From 1991 through 2004, spending grew from about $26.2 billion to nearly $52 billion, an increase of 98 percent -- more than two-and-a-half times the inflation rate (37 percent).

Instead of addressing the symptoms of an economy overrun by government largesse, the BTRC would have been better off recommending lower spending levels, a tax and expenditure limitation law and a super-majority vote requirement for future tax increases.

Source: Grant R. Gulibon, "'Strike the Root' of Pennsylvania's Competitive Disadvantage," Commonwealth Foundation, December 2, 2004; and, "Final Report," Pennsylvania Tax Reform Commission, November 30, 2004.


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