December 2, 2009
Study: Pennsylvania Tax System to Blame for Job Losses, Out-Migration
From 1993-2008, State Saw More Taxpayers Leave than Enter in All Years But One, Lost $9.7 Billion in Adjusted Gross Income
Washington, DC, December 2, 2009 -- As President Obama prepares to kick off his "Main Street Tour" Friday in Allentown, Pennsylvania, a new Tax Foundation analysis shows that the recession isn't the only factor driving the loss of jobs and residents in the state. Pennsylvania's tax system -- including the 11th-highest state and local tax burden in the country and the highest overall corporate tax rate in the world - is also to blame.
Between 1993 and 2008, the state saw more taxpayers leave the state than move into it every year but one. In the same time period, the state lost, on net, $9.7 billion in adjusted gross income (AGI).
"Pennsylvania's economic woes didn't start with the most recent recession - they began more than 15 years ago largely because the state's tax system is unremittingly hostile to business," said Tax Foundation President Scott Hodge, who authored the report, "Pennsylvania's Tax System - Not Weak Economy - Responsible for Job Losses and Out-Migration." The study is No. 201 in the Tax Foundation Fiscal Fact series and is available online at http://www.taxfoundation.org/publications/show/25569.html.
"As the state continues to lose taxpayers and businesses to other states, its economy and tax base are shrinking," Hodge said.
From 1993-2000, Pennsylvania lost an average of more than 15,000 taxpayers per year, and since then, about 3,800 per year. Even from 2002-2003, the one year in the past 15 that the state gained more taxpayers than it lost, Pennsylvania still gave up $121 million in AGI because the people who are leaving the state are more educated and earn more money than those moving into it.
Pennsylvania residents pay 11.2 percent of their income in state and local taxes, the 11th-highest burden nationally. The state ranks 27th in the Tax Foundation's 2010 State Business Tax Climate Index, which measures the "business-friendliness" of states' tax systems, and even lower in the Index's corporate and property tax components (37th and 42nd, respectively).
The state's corporate tax of 9.99 percent is the second-highest statutory rate among the 50 states, but accounting for federal deductibility, Pennsylvania's rate is the highest in the nation. If Pennsylvania were a nation, its overall corporate tax rate of 41.5 percent (federal plus state, accounting for the state-local deduction) would be the highest in the world.
Pennsylvania businesses also pay one of the highest capital stock taxes in the country at 0.290 percent, and Pennsylvania is one of only 10 states that impose an intangible property tax on businesses. Pennsylvania is one of 16 states that still has its own estate tax, and one of four states that tax both estates and inheritances.
"Taxes are just one factor that Americans move among states, but as the Tax Foundation's analysis shows, taxes can clearly create a hostile environment for business investment and job creation," Hodge said. "Pennsylvania appears to be a prime example of that."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact No. 201, "Pennsylvania's Tax System - Not Weak Economy - Responsible for Job Losses and Out-Migration," is available online at http://www.taxfoundation.org/publications/show/25569.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.