Repeat after me: There will be no tax increases in
That's the message - clear and direct - you can expect from new Gov. Tom Corbett in his inaugural speech this week, to be reiterated in a month or so when he presents he proposed budget for the new fiscal year that begins on July 1.
Exit rhetoric. Enter problem.
As many people now know, Corbett is also facing a deficit of between $4 billion and $5 billion. The only path to erasing the deficit appears to be substantive cuts in the state's $28 billion operating budget.
But is that the only way? Not really.
It depends what word you attach to the adjective "tax." No one likes tax increases, for instance. But, how about tax reform? Everyone likes reform.
In the same way, no one likes tax loopholes. But what if we close some of those darn loopholes? Then we'll have tax fairness. That's something we can all rally around.
Here are five ways to reform the tax system in
None of these ideas are new, but they may gain -excuse the expression - currency during the coming budget crisis.
1. Close the loophole for cigars and smokeless tobacco.
2. End the vendor discount on the sales tax. Back in the 1950's, when the state sales tax was first enacted, it took a lot of work to compile the list of sales, etc. to determine the taxes due. In recognition of the cost of this green-eye shade labor, the state gave businesses a 1 percent discount on total sales tax collected. Fast forward to 2011. Most businesses keep track of sales with registers tied to computers. Hit one button and you get a figure of total sales. Hit another and you calculate taxes due. Do they really need a 1% discount to pay for a couple of keystrokes? No. The discount is an antique from another day. End it now. Estimated additional revenue: $74 million a year.
3. Close corporate tax loopholes. It's the same old story. Nominally, every corporation is supposed to pay the state's 9.9 Corporate Net Income tax. So how come only 29 percent actually do pay it? A big part of the answer is that corporations use a varity of loopholes to avoid their fair share. One of the favorites is to register the corporation in another low- or no-tax state (Read:
4. Charge a natural gas extraction fee. Natural gas companies are pouring into
5. Close loopholes in the sales tax. In the 1950's, when the state sales tax was first enacted it had only a few exemptions: food, clothing and prescription medicine. Over time, though, the list of exemptions has grown to include such items as coal, firewood, flags, magazines, candy and gum, wrapping and packing supplies and caskets and burial vaults. Why? Because it seemed like a good idea at the time. Last year, Rendell proposed eliminating these exemptions and also suggested extending the tax to services, such as legal and accounting fees (The proposal would maintain exemptions on educational tuition and health care costs.)
These are not small changes. Removing the exemptions and taxing services would yield so much, it would enable the state to lower the sales tax rate from 6 percent to 4 percent and still bring in additional money. The legislature was in no mood to consider such reforms last year. Maybe this year. Estimated additional revenue: $532 million.
My thanks to the Pennsylvania Budget and Finance Committee for its research on these issues. The Committee's website is a good source of information on state finances. Here is the link to its homepage.
-- TF