It’s time to reform state tax code, too

Pennsylvania lawmakers should get to work on reforming the state government’s obsolete tax code.

Now that congressional Republicans and President Donald Trump have reduced the federal corporate income tax rate by 40 percent, state lawmakers should take it as a cue to reform the state government’s obsolete tax code.

The tax rate reduction from 35 percent to 21 percent will save corporations about $1 trillion over 10 years.

Meanwhile, Republican majorities in the state Legislature steadfastly refuse to enact two major corporate tax reforms that not only would help the state government resolve its systemic deficit — estimated to be about $1 billion by the close of the current fiscal year June 30 — but more fairly distribute the tax burden.

Pennsylvania has a 9.9 percent corporate tax rate, which companies and politicians alike lament as being burdensome, even though relatively few companies, especially big ones, actually pay that rate.

Lawmakers continue to maintain a tax evasion scheme known as the Delaware loophole. Many large corporations evade tax liability in Pennsylvania, using the loophole to report their income through corporate shells in low-tax or no-tax states such as Delaware.

Lawmakers repeatedly have refused to act on proposals to close that loophole. But now that corporations will be awash in cash due to the 40 percent reduction in federal tax liability, it’s time for legislators to close the state’s door to corporate tax evasion.

The Legislature should reduce the state corporate tax rate by about a third, which would make the state more competitive and provide a break to mostly smaller companies that actually pay the tax. And, it should require what’s called combined reporting by companies that now operate under the Delaware loophole, to ensure that they pay taxes on revenue generated here.

The massive federal tax cut also applies, of course, to companies in the natural gas industry. Barclays, the big investment bank, estimated Thursday that the tax reduction alone will increase by 5 percent the share prices of major gas and oil companies, equivalent to a $1-perbarrel increase in oil prices.

And the bill includes another massive break, allowing drillers to expense 100 percent of their capital costs over five years.

Lawmakers’ excuses for coddling the gas industry always have been bogus. The industry is well-established and profitable. Its markets are growing, with substantial government help.

The federal tax breaks mean there is even less reason for the Legislature not to impose a fair tax on gas extraction. Imposing one finally would end Pennsylvania’s foolish, politically based status as the only gas-drilling state not to have a severance tax.