Harrisburg - Corporate taxes, higher in Pennsylvania than in any other state except Iowa, hinder the state's ability to retain and attract businesses, according to the D.C.-based Tax Foundation's president Scott Hodge.

With a 35-percent federal rate, corporate income taxes in America are already higher than in most other nations with membership in the Organization for Economic Cooperation and Development (OECD). When state corporate taxes factor in, the U.S. has an averaged corporate tax rate of 39.3 percent, the second highest in the world behind Japan with its 39.5 percent combined rate. Pennsylvania's combined state and federal corporate tax rate is 41.5 percent.

"Tax competition is real across the globe, but unfortunately the United States isn't even in the race," Mr. Hodge said at a luncheon at the center-right Commonwealth Foundation.

He noted that jurisdictions often see their businesses relocate to lower-tax states or nations. The telecommunications company Nokia, for instance, moved operations from Germany, which has a combined corporate tax rate of 38.9 percent, to Hungary, which has a mere 20-percent rate.

Among OECD nations, Ireland has the lowest corporate tax rate, 12.5 percent. Since cutting the rate from over 40 percent, many financial corporations, software companies and insurance providers have moved their operations to the Emerald Isle.

"They really are the 'Celtic tiger,'" state House Republican Policy Chairman Mike Turzai (R-Allegheny) said. He argued that if Pennsylvania wants a more business-friendly climate it should reduce its taxes on individuals and employers.

Republicans in the state House of Representatives are currently pushing to pass a tax-reduction package that would lower the personal income tax to 2.935 percent, reduce the consumer electric bill gross receipts tax by half over five years and make the decreases effective Jan. 1, 2009.

Such tax cuts haven't been amenable to Gov. Ed Rendell (D), who has proposed a budget of $28.3 billion for the coming fiscal year. Hence, Mr. Turzai said, officials must enact limits on budgetary increases.

"Let's adjust our spending to meet the money that we want to give back to the taxpayers," he said.

The representative also took no pleasure in mentioning that Mr. Rendell has approved state borrowing of $3.5 billion in his first term, which is projected to cost $4.76 billion in repayment. The governor's current proposed budget would necessitate borrowing $4.37 billion, an amount that would cost a projected $6.74 billion to repay.

"We're saddling our kids with debt," Mr. Turzai lamented.

The legislator also supports completing the scheduled phase-out of the state's corporate stock and franchise tax, a process Gov. Rendell wishes to decelerate. Pennsylvania is one of few states in the U.S. that taxes both corporate income and corporate assets.

Bradley Vasoli can be reached at bvasoli@thebulletin.us