Although there are many reasons why businesses should want to locate or expand in Pennsylvania, many never learn about them because the state publishes a big red STOP sign for economic development.  

It's called the state Corporate Net Income (CNI) Tax. Pennsylvania's CNI tax rate is 9.99 percent, the highest flat tax rate in the country. (Iowa has a higher rate--12 percent--on net income over $250,000, but businesses in Iowa with less than $100,000 in net income pay only 8 percent.)  

On top of that, Pennsylvania is also one of only two states to limit the ability of companies to deduct prior-year losses from their current year's income. That makes Pennsylvania's high CNI tax even more uncompetitive for entrepreneurial startup firms and for some of our largest and highest-wage businesses like steel and chemicals that operate in cyclical industries.

As if that wasn't bad enough, Pennsylvania also imposes a Capital Stock and Franchise Tax (CSFT) on non-manufacturing businesses. Fewer than half of the states even have such a tax. Although Pennsylvania is phasing out the CSFT, it won't be gone until 2011, and that's assuming the state doesn't delay the phase-out, as it has twice in the past.

The bottom line is that Pennsylvania has the most uncompetitive state business taxes in the country. Pennsylvania's worst-in-the-nation ranking sends a "take your business elsewhere" message that undercuts all of the other valuable economic development initiatives the state has undertaken. And in our current difficult economic times, businesses are going to be looking for states and regions that help them be competitive, not ones that overtax their earnings.

Pennsylvania hasn't always been this unfriendly to businesses. Twenty years ago, the state's CNI tax rate was reduced to 8.5 percent, improving the state's national ranking to 16th. Job creation in the Commonwealth soared. But the success was short-lived because the state increased the rate dramatically in 1991, making it the highest in the country, and the state's job growth rate correspondingly plummeted.

State officials will say there's no way we could even consider cutting business taxes now, with the state facing a budget deficit this year. And it's unfortunate that the state spent all of its big surpluses over the past several years, rather than cutting business taxes when it could afford to do so, or saving more in the Rainy Day Fund.  

But even in the current economic climate, the state can enact a cut in the CNI tax--it just needs to delay implementation until 2010, the same way it has enacted future cuts in the CSFT in order to phase it out affordably. Businesses don't make investment decisions based on what the tax rates are this year, but on what they expect the tax rates to be in the future. And a lower tax rate will encourage business growth in the state, thereby increasing state revenues from all taxes, including the personal income tax and the sales tax, helping get state finances back on track.

What can you do? It's simple:

Ask your state legislator to make Pennsylvania more competitive by supporting a reduction in the Corporate Net Income Tax.