Against the backdrop of escalating economic uncertainties, House Democrats have introduced a bill that would substantially raise the tax rate on passive income for small businesses across the state.
House Bill 1773, titled the “Fair Share Tax Plan” proposes an increase in taxes on passive income sources for small businesses, including S-corporations, partnerships, and sole proprietors, from the current rate of 3.07 percent to a staggering 12 percent.
This increase would affect all of Pennsylvania’s nearly 180,000 small businesses, along with the millions of workers they employ.
The bill, authored by Representative Christopher M. Rabb (D-Philadelphia) and co-sponsored by Rep. Elizabeth Fiedler (D-Philadelphia), Rep. Rick Krajewski (D-Philadelphia), and Rep. Joshua Siegel (D-Lehigh), positions itself as a remedy to what it describes as Pennsylvania’s regressive income tax system, aiming to alleviate the tax burden on lower-income families.
HB1773 is set for a planned hearing by the House Finance Subcommittee on Tax Modernization and Reform tomorrow afternoon.
Opponents of the bill argue that HB1773 could exacerbate Pennsylvania’s already tenuous economic standing, of which data from various sources paints a bleak picture.
The Kauffman Foundation ranks Pennsylvania last in the nation for new entrepreneurs, signaling a challenging environment for startups that would be exacerbated by the “sticker shock” of a twelve percent tax rate on small businesses. Further, the state has seen an exodus of residents and businesses in recent years, with PennLive reporting the state as having the fourth-highest number nationwide of residents leaving in 2023, and the Bureau of Labor Statistics placing Pennsylvania fifth from the bottom in net firm migration (number of businesses moving in versus moving out).
The top reason cited by people moving out of Pennsylvania according to United Van Lines? “Job.”
HB1773’s approach appears misaligned with broader efforts by the governor and state legislature to bolster the state’s competitiveness and economic health. Specifically, Governor Josh Shapiro’s bipartisan initiative to gradually reduce the Corporate Net Income tax, from 9.99 percent in 2022 to 4.99 percent by 2031, which is designed to attract business and investment.
Members of Pennsylvania’s business sector have sounded off voicing opposition to the bill and its provisions which they believe will lead to a dramatic regression in efforts to enhance the state’s economic competitiveness.
“The proposal that House Democrats are scheduled to consider tomorrow would destroy small businesses across the Commonwealth by quadrupling their taxes overnight,” stated Michael Plummer, Director of Public Affairs for the Pennsylvania Chamber of Business and Industry
“House Bill 1773 would sabotage our economic competitiveness and undermine bipartisan efforts to attract and retain businesses in Pennsylvania.”
The PA Chamber went on to emphasize that employers are still struggling with inflation, workforce shortages, and supply chain disruptions, calling the proposal “tragically shortsighted.”
“Instead of entertaining proposals that would lead us to economic ruin, lawmakers should prioritize policies that support small business growth and foster a more competitive business environment.”
The PA Chamber’s full statement is available here.
Greg Moreland, Pennsylvania State Director of the National Federation of Independent Business (NFIB), did not mince words in his critique of the proposal calling it “asinine.”
“Small business owners are much different than Elon Musk and Jeff Bezos and aren’t asking for a quadrupling of their tax rate,” said Moreland.
“There would be severe consequences to our mom-and-pop shops should this proposal become law. But maybe that’s what the sponsor wants? You can’t tax your constituency into prosperity. Wasn’t it President Reagan who said the nine most dangerous words in the English language were, ‘I’m from the government, and I’m here to help?’”
As the debate unfolds, the future for many of Pennsylvania’s small businesses hangs in the balance, waiting to see if this tax hike will become a reality or if alternative solutions can be found to balance House Democrats’ focus on equitable taxation and bipartisan initiatives towards statewide economic vitality.
Olivia DeMarco is an Editorial Associate for Broad + Liberty. She previously served as a legislative aide in the Pennsylvania House of Representatives. She holds a Masters in Public Policy from Temple University.
This is so idiotic. If this passes, I will have to lay off one of my employees – I only have 4 and its hard to keep them as it is. Now make me eat another $20,000 in taxes per year – or maybe ill just move up my move to Florida and PA can have 0%.
This is the dumbest idea since Johnathan Swift proposed extracting sunbeams from cucumbers. It is not, however, surprising, the only ideas Democrats seem able to entertain are those involving taxes. There are those who want to believe that these kinds of tax proposals are the result of ignorance, I believe they are purposeful. I think there is a serious intent to tax small business out of existence. The members of the GA are well aware that can’t be regulated and controlled like large corporations, nor are they hotbeds of unionism. Two things dear to the hearts of the permanent politician class. My suggestion is that any small business tax be coupled with a surtax on legislative salaries, in equal measure with the business tax. After all, living on the public purse should be as burdensome as the taxes they levy on others.
Great idea! 😊👍
philadelphia democrat reps strike again. will their democrat reps in the counties vote with them. maybe they’ll negotiate a lower increase and come off as heroes.
Biased b&l needs to learn the difference between opinion pieces and real journalism. Why are there so many quotes from lobbyists opposed to this bill but not a single statement from the people who proposed it? If this tax only effects *passive* income, the author could have done the work of a real journalist and tell us how much small businesses even make in *passive* income. Are mom and pop shops making so much from stock dividends or crypto investments that this will even affect them? It’s almost as though b&l’s agenda is to generate partisan outrage rather than inform people. I wonder why that is….
Cicero you are correct in noting the deficiency in this piece. All that needs to be done if for B&L to link the article to the bill. Let the readers get an understanding of what it actually says and then make up their own minds. This technique is common in the media on both sides of questions, and is mostly designed as click-bait.
So, I read the bill and it is a hike to 12% and it does include compensation, and is not limited to passive income. See it makes sense to read the whole thing. BTW it went to committee last October – so, why didn’t the red flags go up then instead of over five months later?
I’m confused now. What is this comment section for if not for commenters to offer their perspective (read opinion) on the original writing. I’m not a journalist and I don’t expect to have to become one to comment on an article.
I recall my father’s and mother’s small upper New York State manufacturing business loosing contracts to Mexican companies thanks to Bill Clinton signing NAFTA into law in December 1993. My parent’s business did not survive the Free Trade Agreement which created the world’s largest free trade zone.
My parent’s manufacturing business with six employees lost contracts to Mexican companies producing similar, less expensive, but cheaper quality products.
Mexico and China offered cheaper labor costs to American corporations. American made products lost favor.
Pa house bill 1773 is deja vu for me.
Wow a 300% increase in my state income taxes if it goes from 3.07% to 12%. Why are Dems targeting independent contractors and small businesses? I agree with a commenter above – Repubs should propose an amendment to this bill to levy the tax on all state employee salaries and see if the bill gets anywhere.
In everything I’ve read so far, I’ve not seen a concrete example of what this percentage increase costs in real dollars. What is the actual tax rate?
Where have I heard that line before, “Pay Your Fair Share”? Oh, that’s right. Out of the mouth of the hater of America, Barack Hussein Obama. Keep trying to destroy this country, Democrats.