HARRISBURG -- A business advisory panel convened by Gov. Ed Rendell is recommending that the state cut its corporate net income tax by nearly a third, a reduction that would be the keystone of a larger package aimed at reforming Pennsylvania's commerce taxes and encouraging business growth.

The proposed reforms would be as sweeping as they are radical, and debate on the package will be on lawmakers' plates next spring, when they also contemplate new environmental spending and new taxes that would help fund public transit. The Republican-controlled Legislature would have to approve any changes to the tax code.

The corporate net income tax, which is now at 9.99 percent and would drop to 6.99 percent under the proposal released yesterday by the Pennsylvania Business Tax Reform Commission, is third-highest in the country, and "discourages both new economic development and the retention of existing Pennsylvania business," the panel said.

Reducing that rate, while broadening the base of businesses that pay it, would go a long way toward making the state more competitive with its neighbors as well as nationwide, said Revenue Secretary Greg Fajt, who chaired the tax panel.

The tax cut has the support of much of the corporate community, though smaller business groups are already saying that the master proposal favors large corporations over entrepreneurs. For example, raising the income taxes on individual businesses, something proposed by the panel, would be a "blow to small business," said Cliff Shannon, director of SMC Business Councils, a business lobby.

"Since the majority of Pennsylvania businesses are affected by the [personal income tax], not the [corporate net income tax], for my members and for the sake of the business and job growth across the state, it's important that the tax burden on those businesses not be increased," said Shannon.

Another small business group, the state branch of the National Federation of Independent Business, told Rendell in a news release to "try again." And industrial and manufacturing groups say the proposal doesn't tackle property and sales taxes, which also hinder commerce.

Regardless of business support, changing the state's tax code can be a laborious process, requiring months or years of negotiation by legislators, the governor and lobbyists. Rendell is expected to embrace the recommendations in his 2005-06 budget address come February, and negotiations on the changes would proceed from there.

Along with a reduction in the corporate net income tax, the package calls for a raft of other changes -- raising the tax rate on the profits for so-called "pass through" businesses from 3.07 percent to 4.07 percent; continuing the phaseout of the capital stock and franchise tax; streamlining the tax appeals process; and eliminating the annual cap on tax-deductible operating losses.

Those proposals ought to be part of a take-it-or-leave-it deal, said Fajt, and aren't meant to provide an a la carte menu for state legislators, who would have to adopt any tax code changes.

"We believe strongly that this proposal must be viewed as a package," Fajt said.

"We were emphatic about that. ... It can't be picked apart."

The final report followed seven months of meetings, though little was changed between its release and that of the interim report in June.

Rendell asked that the proposals be revenue-neutral, meaning they would neither add nor subtract from the total business tax levy, but instead rearrange who pays. The panel's proposals, if enacted as written, however, would actually collect $49 million less than the current arrangement.

Though the package would appear to reduce the business community's overall tax burden, the all-or-nothing approach may hinder negotiations on the package, said Drew Crompton, counsel to Senate President Pro Tem Robert Jubelirer.

"It would be such a radical change in the business climate," he said. "I'm not certain that we can go anywhere with this. ... I actually think the piecemeal approach would be a better way."

Crompton said he expects that Republicans will be painted as obstructionists afraid to make bold changes if they oppose Rendell's plan, but even so, "I think we will be cautious. ... We are going to be a very tough sell."