8 things to know about the new tax code bill passed by the PA House

A wide-ranging tax code bill that would speed up the state’s corporate tax reduction and expand existing tax credits moved through the Pennsylvania House of Representatives on Tuesday night, drawing a wide range of responses from members of the General Assembly. 

A top House Democrat said the provisions in House Bill 1219 will help the economy grow, while House Republican leaders criticized the bill as a giveaway to special interests. The GOP leader in the state Senate, Joe Pittman, meanwhile, called the legislation intriguing – offering a glimmer of hope for the bill’s fate in the Republican-controlled Senate.

Below, City & State takes a look at the contents of the omnibus tax code bill approved by House lawmakers, and as well as what the future holds for the 89-page bill. 

1. It would speed up the state’s corporate tax reduction

In the 2022-23 budget, lawmakers and Gov. Tom Wolf reached agreement on a plan to gradually lower the state’s 9.99% Corporate Net Income Tax rate to 4.99% by 2031. Now, with the passage of HB 1219, lawmakers are looking to speed that process up. Language currently included in the tax code bill would expedite that process and bring the CNIT to 4.99% in 2026. 

That’s not the only corporate tax change the bill makes. It would also implement combined reporting, which requires a company and its subsidiaries to file a combined tax return that includes income from multiple subsidiaries. Proponents, including Democrats in the General Assembly, have touted combined reporting as a way of preventing corporations from shifting profits out of the state and avoiding corporate taxes in Pennsylvania. 

The bill would also increase the size of the state’s Net Operating Loss deduction for corporate taxpayers. The bill sets in motion a phased increase to the NOL deduction, increasing the current 40% deduction to 80% by 2027. 

Luke Bernstein, president and CEO of the Pennsylvania Chamber of Business and Industry, said in a statement that he is worried about the impact combined reporting could have on the state’s economy, calling it “counterproductive.”

“Passing an expedited CNI and increasing the cap on NOLs without combined reporting would set Pennsylvania on a competitive path that would rival not only other states, but other nations,” Benstein said.

2. It establishes an Earned Income Tax Credit

The bill would also create a state-level Earned Income Tax Credit that would allow taxpayers to apply a credit equal to 25% of their federal Earned Income Tax Credit against their personal income tax liability. 

That provision of the bill was praised on the House floor by House Democratic Leader Matt Bradford. “We should say that if you go to work, if you put in your 40 hours, that we will subsidize poverty wages…” Bradford said. 

3. It expands the state’s Film Production Tax Credit

One of the GOP’s chief criticisms of the bill is that it expands an existing tax credit – the Film Production Tax Credit – which is already aimed at encouraging movie production in the commonwealth. The tax code legislation would increase the aggregate amount of tax credits awarded each year from $100 million to $150 million, while also increasing the size of the credit that film producers can apply against their tax liability from 50% to 75%.

Speaking on the House floor Tuesday night, GOP state Rep. John Lawrence called the bill “a giant sausage of a bill with tax breaks for millionaires, Hollywood movie studios, and well-connected special interests.” He added: “$50 million for film studios on top of the tens of millions already set aside for that – I frankly do not see that as a top priority for the people of Pennsylvania.”

4. Democrats say the bill will grow the economy

Democrats, who advanced HB 1219 with a narrow, party-line vote, touted the legislation as a plan that will give the state’s economy a boost. 

Bradford called the bill “a big first step in moving this commonwealth to a more equitable, more prosperous Pennsylvania,” while House Appropriations Committee Chair Jordan Harris said in a statement that the omnibus bill “upholds our commitment to working families, businesses, and communities around the state and reinforces the policies we’ve been consistently fighting for.”

Harris added that HB 1219 is a means “to continuing the growth of our state’s economy, while taking care of our most vulnerable. It is our caucus’s hope that the Senate brings this to a vote quickly and does what’s best for hard-working Pennsylvanians.”

5. House Republicans remain critical of the bill …

Leaders from the House Republican Caucus gathered in the state Capitol Wednesday to express their concerns with the bill. 

House Republican Leader Bryan Cutler said he believed the bill was passed in a rushed process. “Spending a billion dollars along a straight party-line vote without notice or time for review is not the way to run a chamber, is not the way to pass legislation and it’s certainly not the correct way to govern,” he said. State Rep. Tim O’Neal, the House GOP Whip, called the bill an “an unserious attempt to deal with very important issues.”

6. … But they do like some things in it

However, House Republicans noted that they like some components of the bill, such as the bill’s Child and Dependent Care Enhancement Tax Credit, which Cutler noted was passed when Republicans had the majority in the House. Cutler also commended language that will require the state to make a telephonic tax filing option available to those who seek a religious exemption.

“In this bad legislation, there are things we can work with,” said O’Neal. “We know Democrats believe we have good ideas because they keep stealing them.”

7. Joe Pittman finds the bill ‘intriguing’

While all Republicans in the House voted against the bill, it got a warmer reception from Senate Majority Leader Joe Pittman. 

“I applaud the House Democrats’ recognition that there are ways to use our revenue surplus other than on increased spending. What the House passed is certainly a historic shift in tax policy, which is very intriguing,” Pittman said. 

In the statement, Pittman added that he is “eager to know what the governor would do upon this legislation reaching his desk.”

8. It’s unclear if Shapiro will sign the bill

Despite Pittman’s curiosity over where Gov. Josh Shapiro stands on the legislation, the Democratic governor has yet to publicly weigh in on the bill. City & State has reached out to Shapiro’s office for comment.