(The Center Square) — Pennsylvania’s latest budget deal increased spending and much of it favored private businesses, critics say.
A new analysis of the Commonwealth Foundation says the budget included $1.3 billion in corporate social spending.
“Corporate welfare, or government spending designed to benefit specific industries, is often offered as a way to improve a state’s business climate,” the analysis notes. “Corporate welfare comes in many forms, from direct taxpayer subsidies and subsidies to tax credits.”
However, it is difficult to link corporate well-being to economic growth.
“Corporate welfare spending does not improve the state’s business climate. States are seeing low returns on investment, and taxpayer dollars are subsidizing jobs that would have existed without government funding,” the Foundation noted. “A 2021 report from the Pennsylvania Independent Fiscal Office (IFO) shows that most tax credits yield less than 25 cents per tax dollar spent.
The IFO report attributes certain non-economic benefits to businesses’ well-being, such as their “social impacts”, the health and environmental benefits of certain projects and the increase in property values in certain neighborhoods , but these results “cannot be easily measured”.
Despite the lack of economic growth, business wellbeing was up from a year ago: spending was up $105 million. The majority of this new spending went to four programs:
The Airport Land Development Zones Fund.
The waterfront development tax credit.
The film tax credit program.
The data center equipment exemption.
The movie tax credit program received a $30 million boost, although supporters wanted to see the program increase from $70 million to $125 million, like The Center Square Previously reported.
The Redevelopment Assistance Capital Program, the Pennsylvania Racehorse Development Fund, and the Entertainment Production Tax Credit (which includes film and entertainment tax credits) have the most benefited from the expenses.
Corporate welfare is also criticized because it can sometimes force a company to subsidize its competitors.
“Tax credits are problematic for businesses, especially those that do not benefit from them,” notes the Foundation. “Companies pay taxes to the state, which in turn redistributes these taxes to companies of its choice. In some cases, Pennsylvania businesses can indirectly fund their competition with taxpayer money.
Instead of more tax revenue going to private business, the Commonwealth Foundation has advocated for broader tax and economic reforms.
“Eliminating corporate welfare and reducing (corporate net income tax) and (personal income tax) would go a long way to making Pennsylvania an attractive destination for businesses and workers,” the analysis notes.