PA lawmakers offer up tax breaks for small businesses

By Andrew Staub | PA Independent

As people across the country rushed to file their tax returns on time Tuesday, a group of Pennsylvania lawmakers offered up a package of legislation that could make the process more palatable for small business owners in the future.

One proposal, from state Rep. Seth Grove, R-York, would allow small business owners to deduct net operating costs, much like Pennsylvania’s corporate taxpayers can.

“I just think it’s smart, it makes sense and obviously it makes us more attractive for small business,” Grove said.

Another from state Rep. George Dunbar, R-Westmoreland, would raise the cap on the amount of depreciation on large purchases that businesses could write off in one year from $25,000 to $100,000.

A third, sponsored by state Rep. Stephen Bloom, R-Cumberland, would mirror IRS regulations on “like-kind exchanges” that allow for the exchange of business or investment assets for another with no tax due at the time of the swap.

The Pennsylvania chapter of the National Federation of Independent Business supports the package of legislation, with Executive Director Kevin Shivers painting the proposals as tax simplification measures that would allow business to invest more time and money in their entrepreneurial pursuits instead of tax preparation.

“If we reduce the burden that these small job creators face, we believe that we will generate more tax revenue because these small businesses will be more profitable,” Shivers said.

Not everybody is sold on the proposals or Shivers’ take that they are not tax breaks.

“It’s not tax simplification. These are tax cuts,” said Michael Wood, research director at the Pennsylvania Budget and Policy Center, a left-leaning think tank.

That could mean problems, especially as the state continues to grapple with ways to fund education and its public-employee pension system during a tenuous budget year, Wood said.

Cuts also could shift the tax burden more onto wage earners across the state, set up a difficult administrative process for the Department of Revenue and would not guarantee that small business owners would not hire an outside accountant to prepare their taxes, Wood said.

The lawmakers’ proposal cameas the American Legislative Exchange Council, a national conservative organization that favors limited government and free-market policies, released its “Rich States, Poor States” report that ranked Pennsylvania’s 2014 economic outlook as 33rd in the nation.

And while Pennsylvania has made some strides with tax policy — it’s up one spot from last year’s report and ranked 40th or lower four straight years before that — a middle-of-the-pack ranking doesn’t make for a great marketing slogan, said Jonathan Williams, director of ALEC’s Center for State Fiscal Reform and the co-author of “Rich States, Poor States: ALEC-Laffer State Economic State Competitiveness Index.”

“That’s something that should light a fire, I think, under most elected officials and economic development individuals that want to see business and individuals come to Pennsylvania,” Williams said.

Some argue that reducing the tax burden on small business could help spur economic growth. Warren Hudak, owner of the Hudak & Co. small business accounting firm, is among that group.

Policies such as the ones suggested Tuesday could help small businesses survive tough economic times or simply reduce the snarl of tax paper work that must be filed every year, Hudak said.

“It makes it easier for people to make investments in their businesses, and that’s a big leap,” he said. “Anytime we encourage successful business people to invest more of their money into their businesses, it’s got to be a good thing for everybody.”

Andrew Staub is a reporter for PA Independent and can be reached at Andrew@PAIndependent.com. Follow @PAIndependent on Twitter for more.