Paying Your Boss: How States Are Letting Corporations Pocket Their Workers’ Tax Payments

According to a new report by Good Jobs First, an organization that promotes accountability in economic development, a growing number of companies are collecting their workers’ income tax payments and keeping them, with the approval of state governments. Instead of having their taxes go to pay for public services like schools or roads, these workers are, quite literally, handing their tax payments to their bosses:

For some people, the personal income taxes they see deducted from their paychecks aren’t supporting public services. Indeed, this is true for workers at more than 2,700 companies in 16 states.

Nearly $700 million is getting diverted each year. And it is very unlikely that the affected workers are aware, given that no state requires that the diversion be disclosed on pay stubs.

Where is the money going? To the employers of those workers. A growing number of states are diverting revenue traditionally devoted to funding essential government services to pay for lavish subsidy awards to corporations for job creation or sometimes simply job retention. The practice of redirecting large portions of the state personal income tax (PIT) withholding deducted from paychecks means many workers are, in effect, paying taxes to their boss.

Some states, such as Kentucy and Missouri, allow companies participating in certain programs to simply keep their own workers’ tax payments, never remitting them to the state. Others, such as New Jersey and North Carolina, hand the tax payments over to the state and then receive a check later.

As Reuters’ David Cay Johnston noted, allowing companies to keep their employees’ tax payments is a simple way for politicians to hand out corporate goodies without having the government itself write a check. “These deals typify corporate socialism, in which business gains are privatized and costs socialized,” he wrote. And the programs often turn into boondoggles, with states not delivering on the jobs they promised in return for pocketing their employee’s taxes.

As we’ve noted time and again, providing corporations with subsidies in order to entice them into creating jobs is a failed strategy. The fact that companies are being allowed to directly pocket their own workers taxes is just adding insult to injury.