HARRISBURG — Gov. Tom Corbett and his fellow Republicans who control the Legislature were poised to deliver yet another business tax cut, the biggest yet of Corbett’s three budget proposals.
Tax collections this year were supposed to produce a $230 million surplus. That would allow Corbett’s plan to absorb the tax cut and rising public employee pension costs while adding some money for the public schools and social services that had borne the brunt of two years of spending cuts.
But the story gets muddy from there, and a $360 million reduction in the capital stock and franchise tax may no longer be set in stone, even for a core Republican constituency of business owners and executives who will view anything less as a tax increase.
Now, disappointing tax collections have opened a projected hole of more than $500 million in Corbett’s proposal for a $28.4 billion budget for the fiscal year beginning July 1.
Democrats are pressing to delay two reductions in the capital stock and franchise tax rate — one that took effect Jan. 1 and another set to take effect Jan. 1, 2014 — to ensure that there is extra money for public schools and social services.
Adding to the stress on Corbett’s budget plan is the $120 million that Philadelphia is seeking from the state to avoid another wave of layoffs in its schools.
Meanwhile, more spending cuts may be out of the question: Top Republicans are sensitive to the idea after two years of squeezing education, social services and health care.
Corbett’s budget secretary, Charles Zogby, said the governor is committed to following through with a gradual elimination, or phaseout, of the capital stock and franchise tax. But the current budget situation will test that.
“I think whether we can afford to continue the phaseout is something we’re going to have to examine,” Zogby said Thursday.
The elimination is scheduled to be complete Jan. 1, 2014, when the rate is supposed to drop to zero.
The capital stock and franchise was enacted in 1840, according to the Department of Revenue, and rose as high as 13 mills in 1991. Pennsylvania is one of only nine states to impose such a tax along with a corporate income tax, according to the Pennsylvania Chamber of Business and Industry.
When then-Gov. Tom Ridge and the Republican-controlled Legislature set the gradual elimination of the tax into motion in 2000, it accounted for more than 5 percent, or a little over $1 billion, of the state’s approximately $20 billion in general tax collections.
Over the next decade, more deductions were added to the tax and the tax rate has dropped steadily, although the original schedule of elimination was delayed several times during tight budgets.
In 2011, when Corbett took office, the tax provided $820 million, or about 3 percent of the state’s nearly $26.5 billion. Under Corbett’s projected budget, the tax would contribute $243 million, or less than 1 percent of more than $29 billion in collections.
Zogby said he does not sense support from top lawmakers to roll back the 2013 tax rate of 0.89 mills to the 2012 tax rate of 1.89 mills. But keeping the 2013 tax rate, or a portion of it, on the books in 2014 is likely to be discussed.
“Given the gap that we’re looking at, I think we have to look at everything,” Zogby said.
Top Republican lawmakers are largely dismissing talk of delaying the long-sought elimination of the tax.
“It’s a double tax on employers in the state and it needs to just come to an end,” said House Majority Leader Mike Turzai, R-Allegheny. “It’s taken us a long time to get there and we’re going to get that done.”
Senate Appropriations Committee Chairman Jake Corman, R-Centre, acknowledged that the subject could get serious discussion if the projected budget gap grows before July 1. But, he said, he believes other sources of money can be found to close the gap. He would not, however, identify those sources of money.