Democratic leader Matt Bradford took to the floor of the Pennsylvania House this month and invoked Ronald Reagan and Jack Kemp, a move that augurs well for an end to partisan gridlock and, just maybe, for the state’s economy.
Bradford praised lower corporate taxes and called for a realistic Net Operating Loss provision that allows businesses to carry over losses from one year to offset future profits. Most start-up businesses struggle in their early years. Allowing a larger NOL keeps them alive long enough to turn a profit and become revenue generators.
Calling the state’s Corporate Net Income Tax rate, just recently 9.9%, “a giant stop sign to growth and investment here in the Commonwealth,” Bradford, a self-professed “progressive” invoked the Gipper and Kemp on the issue of taxes.
“If you give us add-backs, if you do what Ronald Reagan and Jack Kemp and supply siders have been talking about for decades — if you would lower the rate and broaden the base where revenue would come in, taxes would be more fair,” Bradford said.
Forget the vaguely worded “add-backs.” That’s code for provisions tucked into the bill to actually make the tax code less competitive. What’s meaningful here is that Bradford called on legislators to accelerate the planned cuts in the CNI.
How can a Republican hear those words and not pray that we have another Ronald Reagan — another liberal-come-to-enlightenment — in our midst? How can we not take him up on this proposal?
The Republican caucus has long been fighting to reduce the CNI from its second-in-the-nation high of 9.9 to 4.9%. We have advocated for allowing NOL reform to keep small businesses afloat long enough to become the same big businesses that already enjoy that tax relief.
The moment suggests that each side understands that high corporate taxes don’t just slow business growth. They affect wage growth. They cost us jobs, population and, as a result, political clout in Washington. In an act of economic jiu-jitsu that is at once counterintuitive and mathematically established, high business taxes result in less revenue.
Globalization has already shown us how to lose jobs to low-wage countries. The great re-shoring of manufacturing in the wake of pandemic supply chain disruptions has brought many of these jobs back.
The competition between states for those new factories has taught us something else: our Corporate Net Income Tax puts us at a disadvantage to every state bordering Pennsylvania. Competing states know this and will likely adjust accordingly, if only to maintain their competitive advantage.
We can outmaneuver them and draw in the companies and jobs that are emerging as we restore manufacturing on our shores.
The tax reform package enacted as part of this year’s budget includes a long-overdue reduction to the state’s CNI, taking it from 9.99% to 4.99% over the next nine years. A great deal can happen in nine years, including strategic adjustments by competing states.
We need to do what Rep. Bradford called for and accelerate that reduction. Legislative Republicans are ready to join with Rep. Bradford’s call and have introduced legislation to immediately cut the CNI to 7.9% with a one percent reduction every January until we reach 4.99% in 2026.
Similarly, my colleague have introduced legislation to expand Net Operating Loss provisions to mirror what every other state already offers.
These are two things we can get done. As Jack Kemp once said: “My passion for ideas is not matched with a passion for partisan or electoral politics.” That’s an idea long overdue but, if the Majority Leader meant what he says, no longer out of reach.
State Sen. Ryan Aument, R-Lancaster, is co-founder of Building a Stronger Pennsylvania.
First Published: October 25, 2023, 10:00 a.m.
