New Outrage from the Corporate State

This is just nuts.

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.

General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says.

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.

Kentucky, where I have operated for over 10 years, seems to be the originator of this silliness.  I have always wondered why there is not an equal protection issue with such subsidies given to a chosen few companies but not to others.

I wrote years ago about such relocation subsidies being a prisoners dilemma game:

I hope you can see the parallel to subsidizing business relocations (replace prisoner with "governor" and confess with "subsidize").  In a libertarian world where politicians all just say no to subsidizing businesses, then businesses would end up reasonably evenly distributed across the country (due to labor markets, distribution requirements, etc.) and taxpayers would not be paying any subsidies.  However, because politicians fear that their community will lose if they don’t play the subsidy game like everyone else (the equivalent of staying silent while your partner is ratting you out in prison) what we end up with is still having businesses reasonably evenly distributed across the country, but with massive subsidies in place.

To see this clearer, lets take the example of Major League Baseball (MLB).  We all know that cities and states have been massively subsidizing new baseball stadiums for billionaire team owners.  Lets for a minute say this never happened – that somehow, the mayors of the 50 largest cities got together in 1960 and made a no-stadium-subsidy pledge.  First, would MLB still exist?  Sure!  Teams like the Giants have proven that baseball can work financially in a private park, and baseball thrived for years with private parks.  OK, would baseball be in the same cities?  Well, without subsidies, baseball would be in the largest cities, like New York and LA and Chicago, which is exactly where they are now.  The odd city here or there might be different, e.g. Tampa Bay might never have gotten a team, but that would in retrospect have been a good thing.

The net effect in baseball is the same as it is in every other industry:  Relocation subsidies, when everyone is playing the game, do nothing to substantially affect the location of jobs and businesses, but rather just transfer taxpayer money to business owners and workers.

  • Mark2

    Los Angeles refuses to subsidize sports stadiums and they have been without football for how many years now. Since 1995 I believe. Folks like it though cuz there is never a blackout on TV and you get to watch the best games in the Nation. Plus between UCLA and USC (who can never quite fill up a stadium BTW) you get at least one good college team to root for.

    Except for some hand ringing by politicians and City elites, nothing bad has happened to Los Angeles because it does not have a football team.

  • Mark2

    Oh and Los Angeles is the second largest City in the US. I guess the subsidies can help, if a team is what you really want.

  • Mark2

    Oops looks like a new stadium will be build. And brilliantly it will be downtown. If you don't know downtown, it has got to be the worst traffic nightmare of any city in the USA, which traffic jams most of the day. The interchanges between 110, 5, and 101 are obsolete.

  • marco73

    Wow, Florida is not on a list of state governments doing stupid things?
    We don't have a state income tax, that is strictly prohibited in our state constitution.
    Politicos and carpetbaggers of all stripes have lamented for years that everything would be just great if they had another way to tax us.

  • matt

    I work in Illinois which allows this practice, but I live in Wisconsin, which doesn't. Wisconsin and Illionis have a reciprical tax agreement, which means my income is only taxed by Wisconsin and my witholdings go to Wisconsin.

    This has to be a nightmare for the payroll departments of the companies that participate.

  • eddie

    This is dumb, sensationalist reporting.

    The piece is written to say "isn't it outrageous that your employer is keeping your taxes!"

    ... when in fact no such thing is happening. The outrageous thing (as Coyote rightly but obliquely notes) is that the employer is getting a subsidy. But nobody gets outraged about subsidies, alas, so that's not the focus of the piece.

    Instead, the piece is about the utterly unremarkable arrangement by which the company needs to pay the state (collected income tax withholdings) and the state needs to pay the company (the government-granted subsidies) and rather than sending checks both ways they just net the payments out. That's not scandalous, that's math.

  • IGotBupkis, Legally Defined Cyberbully in All 57 States

    >>> e.g. Tampa Bay might never have gotten a team, but that would in retrospect have been a good thing.

    LOL, Tampa still hasn't gotten a team, the stadium is in miles-away St. Petersburg. Notice where Tampa's "center" is. Notice where the stadium is. Now notice how far away one is from the other. And it's called the "Tampa Bay Bulls**fish", so the St. Petersburg people don't think it's their team, either. Hence, even with a World Series under their belts, there's no fan base, really.

    By contrast, here's where the Tampa Bay Buccaneer football team plays, 25-35 miles away from the baseball team's location... And about 5-10 miles from Tampa's "center".

  • IGotBupkis, Legally Defined Cyberbully in All 57 States

    >>> That’s not scandalous, that’s math.

    It's subterfuge. It almost certainly occurs in a manner which there is little to call attention to its presence. Instead of looking for "payments" to an employer to subsidize it, one has to look in the much less obvious location of "moneys 'forgiven'". And I will pretty much guarantee you that, if you ask any bureaucrat who would nominally be in charge of dealing with such subsidies, if there's a subsidy going to "industry 'x'", they would openly and categorically deny it.

  • marco73

    Re: the Tampa Bay baseball team
    Tampa will get the Rays one day; it will just require gobs and gobs of public money to build a stadium in Tampa nearer to the population center of the region.
    The local power brokers and politicos are working on vacuuming our wallets right now.

  • Rick

    "Tampa Bay" is a body of water and could only field a water polo team. "Tampa" is the city.

  • Sam L.

    The result to the employee--no difference. It comes out of his paycheck at the given state rate, and is credited to him by the state on his W-2, so he/she has no reason to care. But it does look under-handed.