State Budget Reaction
September 30, 2009

Hello, I’m Gene Barr, vice president of the Pennsylvania Chamber. Welcome to this month’s Pennsylvania Chamber Minute.

On Sept. 18, Senate Republican and House Democratic leaders announced a tentative agreement with Gov. Ed Rendell on a state budget for the 2009-2010 fiscal year.

Since earlier this summer, legislative leaders and the governor had remained at odds over spending levels and revenue projections.

The plan is not perfect.

It was apparent early on that there was a consensus to increase the Capital Stock and Franchise tax for the third time. And unfortunately, the tentative budget would do just that -- reverting back to the 2008 level of 2.89 mills, retroactive to January first. This rate would be effective through 2011.

To secure the Rendell administration’s support, the budget contains a new tax on cigarillos, and would apply the state sales tax to museum and live performance tickets.

But there is also good news to report.

The business community was still able to realize progress on two of its business tax priorities.

First, the budget would improve the treatment of business tax losses. Second, it would move the Corporate Net Income tax sales factor closer to 100 percent.
In addition, the proposed spending levels are below that of last year’s budget, meeting Chamber members’ goals of fiscal restraint and a state government that lives within its means.

It is a far and welcome cry from what took place in 1991, when the deficit was less than half of what it is this year, and yet billions of dollars in additional spending on the backs of job creators were increased to pass the budget.

This tentative agreement also excludes taxes the PA Chamber fought against that would have negatively impacted businesses of all sizes. They include a 16 percent increase in the Personal Income Tax, which would have been a hit to the pocketbooks of small businesses and individuals, as well as a new severance tax on natural gas.

Further, the plan keeps many other existing sales tax exemptions that some lawmakers wanted to eliminate, and rejects a new 2 percent tax on all health insurance plans in the Commonwealth.

Given the substantial fiscal challenges facing the Commonwealth and the pressure from many in state government for more spending and higher taxes, taxpayers faced a potential disaster.

The PA Chamber commends lawmakers who stood up for fiscal restraint and developed a sustainable budget that could have been much worse for the Commonwealth’s job creators, families and long-term economic growth.

Your involvement helped. Thank you for your efforts, your support and for spending a minute of your time with the Pennsylvania Chamber…The statewide voice of business.