HARRISBURG – The House Majority Policy Committee, chaired by Rep. Martin Causer (R-Cameron/McKean/Potter), heard testimony Wednesday reaffirming the potentially devastating economic impacts of Gov. Tom Wolf’s budget proposal on businesses already struggling due to the impacts of the coronavirus pandemic.
Testimony focused on the governor’s proposed 46% increase in the Personal Income Tax, which is paid by a large percentage of the state’s employers, as well as the proposed hike in minimum wage and increased energy taxes.
“The budget proposed by the governor is really out of touch with the reality facing business owners in all sectors across the state,” Causer said. “Increasing taxes and artificially inflating wages – on top of the revenue losses caused by COVID-19 mitigation efforts – would significantly increase the cost of doing business in the Commonwealth and the end result would be the loss of thousands of jobs.
“There is absolutely no question we need to enact a budget that is supportive of the people who employ our citizens and make our economy go, rather than the governor’s plan, which does nothing more than kick our employers while they’re down,” he added.
Wolf’s proposed increase in the Personal Income Tax (PIT) from 3.07% to 4.49% would be paid by an estimated 855,000 small businesses across the Commonwealth. Unlike larger businesses that pay corporate taxes, these employers do not have the ability to carry losses forward on their taxes, putting them at even greater risk, according to Sam Denisco of the Pennsylvania Chamber of Business and Industry.
“Legislation proposed by House Republicans to allow small businesses to utilize a net operating loss deduction would go a long way in providing assistance to struggling small businesses,” Denisco said. “However, without that change, the governor’s PIT proposal would place a nearly 50 percent tax increase on many small business owners whose businesses have been devastated by the pandemic and are already at risk of closing with no recourse to absorb losses that occurred during the early part of the pandemic.
“With so many unknowns surrounding our future, it’s counterintuitive to place additional burdens and hardships on the same people we’re relying on to drive our economic recovery forward,” he added.
Joseph A. Aldcowski, chief financial officer for Diaz Manufacturing Company LLC and the Diaz Group of Companies based in Montrose, stressed that the increased tax burden would make his business less competitive and increase costs to customers.
“Many of these customers have the option to source comparable products from other suppliers in states with more business-friendly tax structures. We are presently operating at a disadvantage with competing foreign products, primarily from China, and Gov. Wolf’s proposal would only serve to worsen our position,” Aldcowski said.
Guy Berkebile, president of Guy Chemical Company Inc. in Somerset, pointed to the 2017 federal Tax Cuts and Jobs Act to illustrate the value of tax cuts – rather than tax increases – in building the economy. He explained that he took the savings achieved under that law to invest in new equipment, build a larger lab, provide a higher salary and bonuses to employees, and create additional jobs.
“All the good that came to the American economy and the growth and expansion of industry that we have seen because of the lowering of tax rates at the federal level is challenged by Gov. Wolf’s proposal,” he said.
In addition to the governor’s proposed tax increase, he is also proposing to increase the minimum wage to $12 in July and $15 by 2027. His proposal also includes eliminating the tipped wage.
Denisco, of the PA Chamber, pointed to a recent report by the nonpartisan Congressional Budget Office that indicates a minimum wage increase to $15 an hour would lead to the loss of 1.4 million jobs nationwide, around 500,000 more than the number of people they project will be helped out of poverty. A Pennsylvania-specific study conducted last session by the Independent Fiscal Office found that an increase to $12 could lead to the loss of 34,000 jobs across the Commonwealth.
“This mirrors much of the feedback we have received from our members – who have said this type of cost mandate would force them to make very hard decisions regarding reducing hours and/or eliminating positions, increasing the prices for goods and services, and/or curtailing any possible expansions,” Denisco said.
Jim Fris of PJW Restaurant Group and Scott Rudich of Round Guys Brewing Company in Lansdale both testified about the negative impacts an elimination of the tipped wage would have on their businesses and their tipped employees.
“Many servers make much more than the minimum wage and typically earn between $19-$25 per hour with some earning significantly more. At our company, tipped employees earn an average of $25 to $28 per hour,” Fris said. “The tip credit system incentivizes servers to deliver excellent service, enables customers to reward servers for great service, and allows restaurants to keep labor costs in line. I think I can speak for all our tipped employees that they do not want to go backwards – $15 per hour for tipped employee does not work at any level.”
Rudich noted, “If you add the $43,000 lost because of the elimination of the tipped wage and the tip credit to the cost of a minimum wage hike, I am looking at a combined negative impact of $102,150 annually to my business. In these difficult times, that is just too much to bear. To be clear, I can’t hire ANYONE at $7.25 an hour and while I support a higher minimum wage as you can see by our wages scale, it should be driven by market forces and not government mandate.”
Also testifying before the committee were Carl Marrara of the PA Manufacturers Association, who talked about the governor’s proposed severance tax and noted the best way for state government to get more revenue out of the natural gas industry is to help it grow; and John W. Bailey of Bailey Coach, Spring Grove, who talked about the devastation of the pandemic on the family-owned transportation industry and asked that the governor and lawmakers not impose additional burdens and taxes on small businesses that have already suffered enough.
Video of the entire hearing will be posted at pagoppolicy.com
Representative Martin T. Causer
House Majority Policy Committee Chairman
67th District, Pennsylvania House of Representatives
Media Contact: Patricia A. Hippler