Getting Cheeky with Tax Data, Part 2

This is the second of a three-part series running this week on Third and State.

As we noted in Part 1 yesterday, getting cheeky with tax data is not a phenomenon limited to New York City and Washington D.C. Just a few steps south of our worldwide headquarters here at Third and State you can find Pennsylvania's own Commonwealth Foundation working hard not to be outdone by their national peers.

Here are Nathan Benefield and Jonathan Humma discussing the burden of corporate taxation in Pennsylvania:

Pennsylvania's 9.99 percent tax rate is the 2nd highest of the 50 states, behind only Iowa.

That is, of course, the statutory tax rate, but if you remember the case of General Electric from a few weeks ago, you might have the sneaky suspicion that very few corporations actually pay that rate. In fact, three out of four Pennsylvania businesses subject to the corporate net income tax have ZERO tax liability and 85% have a tax liability less than $1,000 (see Page 10).

To drive this point home, my colleague Michael Wood has a nice chart expressing corporate taxes actually collected as a share of personal income. As you can see in the chart, Pennsylvania and Iowa have high statutory tax rates, but loopholes and exemptions mean both states collect much less revenue as a share of total income than many other states.

Benefield and Humma continue:  

Combined with the federal rate, Pennsylvania has the second highest corporate tax rate in the world.

Cough! Again, as the case of General Electric illustrates, there is a huge difference between the statutory tax rate and the actual taxes that businesses pay. The Center on Budget and Policy Priorities explains (here is a nice figure which makes the same point):

Between 2000 and 2005, the share of corporate operating surplus that U.S. corporations pay in taxes — a proxy for the average tax rate — was the second lowest among the studied G7 leading industrialized nations and nearly 3 percentage points below the average of member nations in the Organisation for Economic Co-operation and Development (OECD), according to a 2007 Treasury Department report.

Benefield and Humma want to make the case that Pennsylvania's business climate is bad because of taxes, ergo we should cut corporate taxes and shift more of the tax burden away from the wealthy donors to the Commonwealth Foundation and onto the rest of us. More on that tomorrow.


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