Picking favorites: Creating losers
Fifteen-million dollars worth of Keystone Innovation Zone tax credits to 202 tech startups represent Harrisburg's latest attempt to pick economic winners. But all Pennsylvania businesses and taxpayers would fare far better if the commonwealth offered a uniformly lower tax environment.
State-favored status bestowed by the Department of Community and Economic Development gives these startups an unfair competitive edge over rival businesses burdened by the full weight of Pennsylvania's 9.99 percent corporate net income tax. Eliminating all such state tax credits, incentives and subsidies would enable a 2-percentage-point reduction in that tax rate, to 7.99 percent, estimates the Commonwealth Foundation's Nate Benefield.
He says Pennsylvania keeps trying to pick winners — and, we add, creating losers — because it's “press release economics” offering self-promotion opportunities for politicians and bureaucrats that an across-the-board corporate tax cut wouldn't.
Jake Haulk of the Allegheny Institute for Public Policy says state government “has become addicted to handing out checks,” a practice that devolves into crony capitalism while creating a Pavlovian mindset among companies, “ruining the free enterprise system.”
This practice must end. It forces taxpayers to act as unwilling venture capitalists and leaves intact Pennsylvania's unfriendly, uncompetitive overall business tax climate. And that's a powerful incentive for companies to set up shop elsewhere.