Keystone Opportunity Expansion Zones:  Unequal Opportunities

        Repackaged, but still essentially the same, the Keystone Opportunity Expansion Zones (KOEZ) are back for consideration by the Grove City Borough Council.   The legislation gives tax relief for a considerable period—between ten and thirteen years—to businesses that are created within the opportunity zones.  With Pennsylvania classified as one of the highest business taxing states, who can be against such an offer?  What’s wrong with the KOEZ idea?

        First, the KOEZ concept does not give tax relief from the high Pennsylvania taxing environment to all businesses.  That would have to be accomplished by a general tax cut and would be most welcome.  Instead, only new enterprises coming into the zone receive a “tax holiday.” Existing enterprises, which continue to do business, get no tax breaks.  This raises a fundamental question of fairness.  If Mr. Jones owns a small, established manufacturing enterprise which employs a score of people in an existing location, he continues to pay taxes at the full and unabated rate.  In contrast, Mr. Smith who starts a business in the KOEZ, perhaps even one competing with Mr. Jones, pays no taxes or greatly reduced ones.  Even if the two are not competitors, Jones and other established businesses like him, as well as ordinary taxpayers, are then required to shoulder the bulk of the community’s tax burden while Smith pays nothing during the exemption period. 

        It is sometimes argued that such tax relief is the only way that deserted facilities will ever be made economical again.  The fact is that the American enterprise system recognizes that buildings, facilities, and businesses often have to be converted to other uses.  The former Cooper Energy office building is a good example of a building that is successfully being put to another use by an investigative services company.  However, some facilities may be harder to convert, namely the old Cooper plant.  However, an enterpriser who purchases or leases such a building should be the one who takes the risk of its being a success or a failure.  This risk should not be transferred to the general citizenry or to the established businesses in the community. 

        The second problem with the KOEZ is that it avoids the central question which legislators in Pennsylvania should be answering.  Why are business taxes and other costs of doing business in Pennsylvania so high when compared to other states?  Pennsylvania has the third highest net corporate income tax rate in the nation.  In terms of overall business taxes in Pennsylvania the Pennsylvania Economy League says, according to its latest figures, that the Commonwealth is 6% higher than the national average and the 4th highest among 13 states with which it is a competitor.  The same source indicates that sole proprietors and partners, who do not pay corporate taxes, are hit with individual income taxes at 6% higher than the national average.  Pennsylvania’s house and senate ought to get out the fiscal knife and pare down the budget so that no higher taxes are required or, better yet, make significant cuts so that general tax relief can be given, not the spotty and unfair relief promised some by the KOEZ program.  

        Locally, taxing bodies like the Borough Council and the Grove City Area School District, should refuse to give relief to the few at the expense of the many.  Instead, they should pressure state legislators to do something about the unfortunate business and personal tax climate in Pennsylvania.

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 Dr. John A. Sparks is Chairman of the Department of Business, Grove City College and a Senior Fellow for the Shenango Institute.

Read a gentlemen's response to this article  - Make All of Pennsylvania a KOZ by Paul Kengor.