The $300 million in business tax relief provided by the state this week may result in six-figure savings for some large business owners, but it will not make Pennsylvania radically more competitive in the race to land new companies and create new jobs, experts said.

Legislators passed a new budget early Sunday morning that contained several items important to local entrepreneurs and economic development boosters: the continued phaseout of one of two major taxes paid by firms in the state; a $1 million increase in the amount businesses can deduct from taxes based on annual losses; and a $10 million boost in the amount of tax credits available for any firm involved in research and development.

All should comfort local business owners accustomed to paying some of the highest taxes in the country.

But what Gov. Ed Rendell and legislators did not touch was the other tax paid by businesses in Pennsylvania -- called the corporate net income tax -- that remains the second-highest among all states. And while the Legislature increased the amount of financial loss a firm can carry forward from one year to the next as a way of lowering its taxes, Pennsylvania is still one of two states that has a cap on that amount -- $3 million.

"What we achieved this year is so modest compared to what we need to get this state economy and job creation going," said Cliff Shannon, who represents small- and medium-size manufacturers as executive director of the Churchill-based Small Business Councils. "It sticks in every business owner's craw to say we were successful in this year's budget."

Mr. Shannon was quick to applaud the efforts of the Allegheny Conference on Community Development -- which led the fight for the tax reductions. But "even with this extraordinary effort, the gains for economic development and job creation are very, very modest. For businesses owners, we will be glad to cash the check, but no one in Pennsylvania should be deluded this will change the fundamental situation here. We will continue to have anemic job growth, an abysmally low rate of business starts and growth will lag behind the rest of the country."

Jim Welty of the Pennsylvania Chamber of Business and Industry called the new budget a "small first step." He admitted the changes would not "revamp" the entire state tax structure, nor would they send the signal that the state had made major improvements. "But it does send a signal that Pennsylvania recognizes some of its faults. We know we need to improve them. We will continue taking these baby steps to help Pennsylvania become more competitive in jobs and job creation."

Pennsylvania is one of the few states that requires companies to pay two major business taxes -- corporate net income, which targets profits, and stock-and-franchise, which targets assets. "A double whammy," said Kathryn Klaber, who lobbied for business tax reduction on behalf of the Allegheny Conference on Community Development.

The one lowered in the recent state budget is the stock-and-franchise tax, which already had been scheduled for a year-by-year phaseout ending in 2011. What legislators did was continue the reduction, as scheduled, to .389 on Jan 1, 2007. They also reduced the 2006 rate retroactively, from .499 percent to .489 percent.

Legislators did not lower the corporate net income tax but they did change how it was calculated, increasing the importance of in-state sales and mitigating the importance of payroll and property. Many other states base such a tax solely on in-state sales, providing companies more of an incentive to build plants and hire people.

Overall, the changes in the state budget this year could mean annual savings of more than $1 million for the largest businesses, according to Ms. Klaber, executive vice president with the Allegheny Conference, the region's best-known and best-financed economic development group. "There is no windfall here," she said, "but incrementally it is making Pennsylvania more affordable to do business."

Pennsylvania, she said, still was at a disadvantage when competing for new companies, largely due to its ultra-high corporate net income tax -- the one legislators left untouched. It is a "visibility problem," she said. But, "we are by no means done with the work."