Some U.S. companies don’t forward employees’ income-tax withholding to their states, and a few of the most prosperous Illinois employers are among them – pocketing workers’ state income taxes instead of sending funds to the state, where it could be used to help pay for public safety, health care, roads, etc.
These are the findings of “Paying Taxes to the Boss,” a report by Good Jobs First (GJF), a Washington research group. The first analysis of state economic development programs derived from withholding taxes and personal income tax (PIT) revenue, the report identifies 22 PIT-based programs in 16 states that together take $684 million a year out of the public treasury.
“For some people, the personal income taxes they see deducted from their paychecks aren’t supporting public services,” the report shows.
The theory behind the scheme is to boost job creation.
“Economic development subsidies are just one of many tools we use in order to bring businesses to Illinois,” says Marcelyn Love, Communications Manager for the Illinois Department of Commerce and Economic Opportunity (DCEO), which administers the state’s program, Economic Development for a Growing Economy (EDGE).
“We’re working hard to make Illinois an attractive place to do business not only in the Midwest, but globally,” Love adds.
However, the authors of the GJF report note, “Payments often go to firms that simply move existing jobs from one state to another, or to ones that threaten to move unless they get paid to stay put.”
The 16 states have 2,700 companies participating in the scheme, with 315 of the companies in Illinois – the third highest in the country. The other 15 states are Colorado, Connecticut, Georgia, Indiana, Kansas, Kentucky, Maine, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, Ohio, South Carolina and Utah.
In Illinois, dozens of companies made deals with state government to keep state income taxes paid by their workers. After Chrysler, Ford and Mitsubishi got deals by threatening to close plants, other companies warned they’d move in 2011. The state paid off three of them – Continental, Motorola Mobility and Navistar – by letting them keep all the taxes withheld from their workers’ paychecks for 10 years.
Continental “will pocket $22 million of its workers’ taxes,” GJF reports; Motorola Mobility gets to keep $136 million from workers’ paychecks for promising to stay in Libertyville; and “in return for staying put [in Illinois], Navistar will pocket almost $65 million.”
Other Illinois companies keeping state income taxes from 2006-2010, according to Good Jobs First, included Gates Corp. (Galesburg) $75,139; Caterpillar Logistics (Des Plaines) $80,915; Winpak Heat Seal Corp. (Pekin) $112,647; Deere & Co. (Milan) $114,492; Excel (Pekin) $120,683; PETsMART (Ottawa) $337,813; Dot Foods (Mt. Sterling) $617,494; Farmland (Monmouth) $750,000; Nestle Holdings, Inc. (Itasca) $986,129; Walmart $1,318,029; Pepsico. Inc. (Chicago-Barrington) $2,107,127; General Mills (Belvidere) $3,161,031; and Wm. Wrigley Jr. Co. (Chicago) $3,185,402.
David Cay Johnston – a Pulitzer Prize-winning journalist who outlines the practice in his new book, “The Fine Print: How Big Companies use ‘Plain English’ to Rob You Blind – wrote, “If you work for one of the above companies in Illinois, you probably have not heard that your employer is keeping the state taxes taken out of your check.”
Illinois’ EDGE’s tax credits could be as high as the amount collected from Illinois income taxes paid by newly hired and/or retained employees – for a decade. Companies are eligible if they claim they’ll add to the export potential of Illinois, expand an existing operation or a new location, or make an investment in the state of at least $5 million and create at least 25 new jobs (companies with fewer than 100 employees must make a capital investment of $1 million and must create at least 5 new jobs). Also, employers are supposed to prove that they could move out of state, and that the tax credit is “essential” to create and/or retain jobs here.
“The EDGE program helped the auto manufacturing industry and other employment sectors that were hardest hit by the recession get back on their feet,” says Love, with DCEO. “For example, Ford added a new shift at its Chicago facility and expanded production along with automobile manufacturers Chrysler and Mitsubishi creating/retaining a combined 11,400 jobs and investing more than $1.2 billion of their own money.”
Tim Price, a journalist with Next New Deal.net, disagrees.
“It’s more like extortion than stimulus,” he said. “These workers will essentially be paying their employers for the privilege of having a job.”
It’s corporate welfare, Johnston added.
“You probably expect that money to finance public schools, the state university and college system, law enforcement and the other services that businesses and individuals rely on,” Johnston said. “Mostly it does, but in a growing number of states, your state income taxes will also be increasing the profits of your employer.”
The complete, 39-page report is online: www.goodjobsfirst.org/taxestotheboss
[PICTURED: Illustration from Good Jobs First “Subsidy Tracker” service, the first national compilation of company-specific information on economic development subsidies.]
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