Oh, those Pennsylvania taxes!


Think Pennsylvania taxes should be fairer, more sensible?

Think every sector of the economy should be taxed equally?

Think our CNI (corporate net income) tax rate, the nation's second highest, has anything to do with a job-growth ranking of 41st among the states?

Well, a new book, Pennsylvania Illustrated: A Visual Guide to Taxes & the Economy, dips into the complex stew of state tax structure and suggests ours could use some stirring.

The timing's good. It comes just ahead of another state budget fight certain to focus on taxes. And it was sent to Gov. Wolf and all 203 state lawmakers.

It was done in partnership with the Pennsylvania Business Council, which paid for it, but the foundation retained full editorial control, meaning the book includes stuff business doesn't like.

For example, because we've gone from making things to providing services without changing an antiquated tax system, the service industry gets favored treatment - some say unfairly so.

Our 6 percent sales tax (higher in Philly and Pittsburgh) doesn't apply to a wide range of services: legal, accounting, engineering, advertising, among others.

If it did, the sales tax rate for everyone could come down.

Unless, of course, the state decided to keep the money.

Nicole Kaeding, the Tax Foundation economist who researched and wrote the book, tells me there are several tax areas "ripe for reform."

In addition to the second-highest (to Iowa) CNI, we have the highest gasoline tax. We've got the 15th highest overall tax burden, consistently higher than the U.S. average since 1977. And we rank 32nd among states in business tax climate.

That's worse than "peer states" such as Texas, Florida, North Carolina, and Virginia that Kaeding says we most compete with for business.

I'd note each of those states ranks substantially higher in job growth alone.

Good news? Well, our 3.07 percent personal income tax - which Wolf wants to raise - is second lowest (to North Dakota, 2.9 percent).

But that's tempered by 3,000-plus other entities (school districts, municipalities) imposing hefty local taxes.

Philly and Pittsburgh, for example, have high local wage taxes on top of state income taxes, pushing Philly's rate to 6.98 percent and Pittsburgh's to 6.07 percent.

Kaeding says we're a "true outlier." Most states don't have local income taxes.

Business Council boss Dave Patti says the tax project is aimed at laying a baseline for "holistic" reforms over time. He notes, for example, one statewide system to collect local taxes could cut compliance costs for employers and make things easier for all taxpayers.

The Wolf administration isn't happy with the book's view of the state economy.

Wolf budget secretary Randy Albright notes a "pretty thriving" Pittsburgh; real estate gains in Philly; and ongoing gains in northern tier counties from natural gas, even though new drilling is down.

But Albright says "there's no question" the CNI should come down, property taxes should be lowered, and the sales tax should be broadened.

Guess all that's needed now is a tax-reform package that Wolf and lawmakers can agree to. How hard (cough) can that be?

Oh, and for you wonks, the book's on the foundation website: taxfoundation.org.