Most people assume that states use their state income taxes to fund school systems, pave roads, fund state parks, pay for prisons or even provide low income housing. After all, when you pay taxes you expect the state to you expect them to provide a public service. However the truth is a little more insidious.
Per The Christian Science Monitor, “an ever increasing amount of those tax dollars aren’t funding services; they aren’t even getting to the state capital. Sixteen states now allow corporations to withhold state income taxes from employees and keep the money as an incentive to locate to or remain in a state. That means that, in effect, employees pay personal income tax to their company rather than their state government. (The 16 states are: Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Kentucky, Maine, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, Ohio, South Carolina, and Utah.)
“A recent report from Good Jobs First entitled, “Paying Taxes to the Boss,” sheds light on how widespread this practice has grown. An estimated 2,700 companies now take advantage of this welfare system, fueling an economic war between states that costs employees an estimated $700 million a year in diverted tax income, the report concludes. Those who profit include corporate giants like Sears, Goldman Sachs, and General Electric.
“Illinois offers a special tax incentive that can divert up to 100 percent of withheld taxes into subsidies to encourage companies to locate or expand operations in Illinois when the companies are actively considering a competing location in another state.
“New Jersey’s Business Employment Incentive Program (BEIP) is among the most costly of these programs, with new grants totaling more than $73 million. Ohio and Kentucky top the list of states for the number of companies they subsidize through employee personal income tax withholding.
“The practice has been around for more than a decade, and it’s continuing steadily – with six of the 22 programs identified nationwide enacted since 2009 – according to Good Jobs First, a policy resource center that focuses on economic development and “smart growth.”
“Most corporate tax incentives are simply bad policy, representing an attempt at social engineering our already patchwork tax code. For one thing, businesses don’t make investment decisions based solely on state tax burdens. For another, tax loopholes enable the savviest companies to live tax-free.
“Since money is fungible, some claim it doesn’t matter whether this corporate welfare comes from corporate taxes or personal income taxes. The states are out $700 million in either case. But it does and should matter.
“The personal income tax is a covenant between the citizen and the state. For the executives and shareholders to retain those tax dollars violates that covenant. Employee-funded corporate tax incentives reduce the amount of tax dollars available for vital social services like schools and law enforcement.”
This type of action amounts to fraud, and unfair highly destructive business practices, employees assume that they are paying for a state service, but instead watch as state budgets get smaller and they get less service, then TV tell them it’s because of Welfare, however they fail to mention that they companies they buy their goods at everyday are the ones on Welfare robbing the state blind.
Secondly it gives these large companies who already have huge advantage an unbeatable one. They can use the money given to them by the state to drop their prices below any local small business and drive them out of business. Then once the competition is gone they can raise their prices and reap in huge profits, which go right into the hands of the CEO and stock holders.
These states are damaging their own economies and will bring about their own ruin if this practice is not ceased.