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Pa. gov gets bill to let firms keep payroll taxes

MARC LEVY, Associated Press
Thursday, 18 Oct 2012 | 10:32 AM ET

HARRISBURG, Pa. -- A new state tax incentive designed to encourage companies to hire in Pennsylvania passed both chambers of the Legislature on Wednesday and was sent to Gov. Tom Corbett, where it faces an uncertain fate.

The House voted 111-80 and the Senate 33-16 in favor of the Promote Employment Across Pennsylvania program. It aims to open up a new avenue for Pennsylvania to subsidize growing companies by letting them keep state income tax money they would otherwise withhold from newly hired employees and send to the state treasury.

Supporters say it can help ease unemployment at a time when the state has cut spending on many programs, including financial incentives for businesses, to deal with lackluster tax revenues.

"The beauty of this approach is that this is not revenue that is in the state currently," Senate Appropriations Committee Chairman Jake Corman, R-Centre, told colleagues. "This is new revenue. This is revenue that only gets created if these companies create jobs, good jobs, at least 100 in the first year, 250 over three years."

Neighbors Ohio and New Jersey have similar programs. In New Jersey, a range of companies have taken advantage of it, including biopharmaceuticals maker Bristol-Myers Squibb, bookseller Barnes & Noble and Oracle, the business-software maker.

Sen. John Blake, D-Lackawanna, said the bill "crosses a line" in smart economic development by diverting tax revenue to a handful of private companies, and it duplicates existing programs in law that offer tax credits to companies that hire people.

The bill, he said, is "essentially an employee paying their boss for the privilege of having a job."

Under the bill, a qualifying employer must be a for-profit entity that provides its full-time employees with health insurance coverage and pays at least half of the premium. If it hires new workers in Pennsylvania, it would get to keep 95 percent of the state income tax withheld from the workers' paychecks. That amounts to about $1,458 a year for someone making $50,000.

The amount of diverted tax money would be capped at $5 million annually and the incentive would end in 2018. Some businesses or organizations would not qualify, including schools, the gambling industry, churches, retailers, utilities and eateries, as well as those that are delinquent on taxes.

Companies could get the benefit for between seven and 10 years, depending on how much they pay the employees.

Sen. Jim Ferlo, D-Allegheny, said Republicans are speaking with a "forked tongue" when they say they do not want to pick winners and losers by getting the government involved in handing out taxpayer-paid incentives to private companies. Ferlo suggested the bill was designed with one company in mind, but did not say who.

"All of sudden we're waylaying those employees' wages, almost akin to Jesse James robbing a bank, and we're going to put it back in the pockets of one company, in one locale, in one county, in one jobsite," Ferlo said.

The measure also could have unintended consequences, pitting Pennsylvania corporations against each another in the pursuit of skilled labor, with subsidized firms getting the advantage, Blake said.

Good Jobs First, an organized labor-affiliated organization in Washington, D.C., said in a report earlier this year there are similar programs in 16 other states, amounting to almost $700 million a year in income taxes diverted to employers.