TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, April 16, 2012

Johnston: 16 States Let Companies Keep Billions of Their Workers' Taxes

Reuters, Taxed by the Boss, by David Cay Johnston:

Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers – and are keeping the money with the states’ approval, says an eye-opening report published on Thursday.

The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid. ...

Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years. ...

Deals cut with the states over the past two decades diverted $5.5 billion from public purposes to private gain, the report says. Close to $700 million more was diverted last year, Good Jobs First estimates. ...

These deals typify corporate socialism, in which business gains are privatized and costs socialized. They also mean government picks winners and losers, interfering with competitive markets. Leaders in both parties embrace these giveaways because they draw campaign donations from corporate interests and votes from people who do not understand that they are subsidizing huge companies. ...

Good Jobs First wants to end these diversions, but failing that recommends mandatory disclosure to the workers as the first reform. I concur. It’s the first step in ending corporate welfare as we know it.

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1. What difference does the source of the state incentives make? Maybe liberal activists would rather the money be paid into the states and the states pay the money back to create check-writing jobs for more useless state workers. That's the logic of people who think that value is created when you pay one person to dig a hole and pay another person to fill it back up.

2. Letting the hiring companies keep the taxes for a certain period of time doesn't cost the states anything in contrast to the state paying out unemployment and welfare to people who might otherwise be unemployed, not to mention lost tax opportunities to the states from aupporting industries that locate around the bigger companies.

3. What's this "diversion" business from "public purposes" to "private gain," when the money wouldn't exist at all if the companies didn't locate to or expand within the states?

Oh, heck. Forget it. Just send the jobs to China if that makes the liberals happy.

Posted by: Woody | Apr 16, 2012 6:54:36 AM