PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State Spotlight: Pennsylvania and Philly Need a New Independence Day

By at 3 July, 2019, 8:44 am

by Raymond J. Keating-

Small Business Policy Index 2019: Pennsylvania ranked 34th best among the 50 states.

SBE Council’s “Small Business Policy Index 2019” ranks the 50 states according to 62 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2019: Pennsylvania ranked 33rd among the 50 states.

SBE Council’s “Small Business Tax Index 2019” is included in the Policy Index report, ranking the states according to a wide array of tax measures, including income, capital gains, property, death, unemployment, and various consumption-based taxes like state gas and diesel levies.

Observing Independence Day means celebrating the Declaration of Independence, which was adopted by the Second Continental Congress in Philadelphia on July 4, 1776.  Independence was actually declared on July 2, and the document wasn’t signed until August 2nd.

Both the Declaration of Independence and the Constitution were signed in Independence Hall in Philadelphia. Unfortunately, both Pennsylvania and Philadelphia today come up woefully short in capturing the limited government philosophy that drove the birth of this nation.  Entrepreneurs and small business owners understand this better than most.

According to SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” which ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures, Pennsylvania came in a poor 34th among the 50 states. And the state earned number 33 out of 50 on the “Small Business Tax Index 2019,” which is a subset of the larger Policy Index, whereby the states are ranked just on tax measures.

As pointed out in the Index, on the positive side, Pennsylvania has relatively low state individual income and capital gains taxes; a low level of state and local government employment; and a fairly low crime rate. However, among the state’s key negatives are very high state corporate income and capital gains taxes; the highest state gas tax; the second highest diesel tax; a fairly weighty energy regulatory burden; and the imposition of a death tax.

Matters get even costlier when looking at the city of Philadelphia, in particular, when it comes to additional income taxes.

The city of Philadelphia imposes a wage tax of 3.8712 percent on city residents, and 3.4481 percent on non-residents.

A city net profits tax (NPT) is imposed on sole proprietorships, partnerships, LLCs, associations and estates or trusts at the same rates as the wage tax.

And then there is the business income and receipts tax, which imposes 6.3 percent tax in net income and a 1.415 percent tax per $1,000 in gross receipts. Who pays? The city’s website reports: “Every individual, partnership, association, limited liability company (LLC), and corporation engaged in a business, profession, or other activity for profit within the City of Philadelphia must file a Business Income & Receipts Tax (BIRT) return.” In addition, it is noted: “This is a completely separate tax from the Net Profits Tax (NPT), so it’s possible to have to pay both the BIRT and the NPT.” It’s also pointed out: “However, you may be able to take a credit on the NPT based on the amount of tax owed from your BIRT.”

I think it’s safe to say that the Founders would be outraged at such weighty levels of taxation.

The bottom line: The state of Pennsylvania and, in particular, the city of Philadelphia need a new Independence Day from the burdens of state and local government.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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