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Gov’s Tax Reform Plan under the Microscope

The Corbett administration believes the price of doing business in Pennsylvania is too high. So they plan to finally eliminate the capital stock & franchise tax as of January, and want to gradually reduce the state’s corporate net income tax from 9.99% – 6.99% over the next 12-years. 

“Governor Corbett’s broad-based tax reform proposal sets the stage for robust economic growth by developing a competitive business tax structure, as well as improving the process of collecting taxes and simplifying the tax code,” Revenue Secretary Dan Meuser told the House Finance Committee on Thursday.

But minority chair Phyllis Mundy (D-Luzerne) told Meuser there’s one glaring omission: the plan does not close corporate tax loopholes, like the Delaware Loophole.  Mundy is the prime sponsor of legislation that would do that via combined reporting, but Meuser suggests it would do more harm than good. 

Mundy also points out that the corporate tax breaks proffered by the administration would result in an $800-million dollar annual loss to state tax revenues when fully implemented.  “And I’m not at all sure – I wish I could believe – that these tax cuts for large corporations would result in enough job creation to overcome that deficit,” she says.

Meuser, however, says the economic growth spurred by the governor’s tax plan will mean $1-billion dollars in new state tax revenue by 2030.  “That comes from personal income growth, that comes from employment and that comes from sales tax revenues that are derived from those who are now working that weren’t before.”   

The state has the 2nd highest corporate net income tax in the nation and is one of only a few states that tax both business income and assets, in that the capital stock & franchise tax is a levy against a business’s assets regardless of whether it made money or not. 

The Corbett Tax Plan would also raise the cap on net operating loss deductions, allow for start-up business deductions, repeal the corporate loans tax and eliminate what Meuser describes as “nuisance taxes.” 

But everything is subject to the approval of the General Assembly, and as members of the Finance Committee exited Thursday’s hearing they surely noticed the protesters in the capitol rotunda who rallied against the Corbett plan and argued that corporate tax breaks do not create jobs.

Administration Answers Lottery Questions, Bidder Discusses Plan

Details of the Corbett administration’s plans to privatize Pennsylvania Lottery management became clearer at a public hearing convened Monday by the Senate Finance Committee.  As the administration seeks to finalize a 20-year, $34-billion dollar deal with Camelot Global Services, Revenue Secretary Dan Meuser did his best to put many of the lingering questions to rest.  “Under the Private Management Agreement, the Commonwealth will maintain ownership and all control of all aspects of Lottery operations, at all times,” he stressed to the panel. 

Pennsylvania’s aging population is the driving force behind the effort to put a private sector company in charge of the Lottery’s day-to-day operations.  With PA’s senior citizen population skyrocketing, Meuser says Lottery funding could fall short of demand as early as 2015.  The numbers have led the Corbett administration to explore private management as a way to guarantee steady growth in the Lottery Fund.   

11-months of work resulted in one bidder, but chief negotiator Pete Tartline says two other companies dropped out of the process, in part, because the Commonwealth was asking for too much in return.  “Yes, this is a sweetheart deal.  It’s a sweetheart deal for Pennsylvania’s seniors,” Tartline said as he explained that Camelot did not know it was the only bidder in the end. 

The public hearing was held three days after the Corbett administration issued a “notice of award,” which officially ended the procurement process.  While there’s no binding contract in place yet, Camelot Global Services also appeared in Harrisburg to answer lawmakers’ questions.  “Millions of people playing, spending relatively small sums of money, is what we believe has been the key to our success in the UK,” says Camelot Global Services CEO Diane Thompson.  Camelot has run the United Kingdom’s Lottery since its inception 18-years ago, however they plan to locate their Pennsylvania operations in the Keystone State and pay the applicable Pennsylvania taxes. 

When the contract is signed, which could be soon, officials say the Attorney General will have 30-days to review it.  Final exeuction of the contract will be followed by a six month transition period. 

The state worker union, which represents about 175 Lottery employees, is filing suit to block the deal.  “None of us have seen Camelot’s proposal.  None of us understand the rush to sell our most successful operation without a vetting process, and none of us want profits skimmed off senior programs to pad the pockets of foreign CEOs,” AFSME Council 13 Executive Director David Fillman told the committee.  Given the same opportunity to expand Lottery options, Fillman believes the current structure can beat Camelot’s profit estimates by 10 – 30%.

RadioPA Roundtable

Radio PA Roundtable 07.27.12

On this week’s Radio PA Roundtable, Brad Christman and Matt Paul discuss the NCAA sanctions levied against Penn State University and analyze the football players’ reaction. Matt also follows up on his ongoing reports on the proposal to privatize the management of the Pennsylvania Lottery with an interview with PA Revenue Secretary Dan Meuser.

Radio PA Roundtable is a 30-minute program featuring in-depth reporting on the top news stories of the week. Professionally produced and delivered every Friday, Roundtable includes commercial breaks for local sale and quarterly reports for affiliate files.

Click the audio player below to hear the full broadcast:

[audio:https://s3.amazonaws.com/witfaudio/radiopa/Roundtable07-27-12.mp3]