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The Boss Man Cometh: Through State Tax Breaks, Employers Pilfer Workers’ Earnings

As you file your taxes this week, before complaining about how much you’re forking over to Uncle Sam, bear in mind that the tax man might not be the only one you’re writing a check to: Your boss might be getting a big cut, too.(U.S. tax form via Shutterstock)

Thanks to arcane state tax subsidies, thousands of companies have fattened their profit margins by poaching from workers’ paychecks. According to a report by the watchdog group Good Jobs First, nearly $700 million in taxpayer money was siphoned off by corporations through clever deals with state governments that are supposedly aimed at “job creation.”

According to the report, the tax breaks allow companies to effectively skim money from workers’ state income tax withholdings “to provide lavish subsidies to corporations rather than paying for vital public services.” The beneficiaries include “more than 2,700 companies, including major firms such as Sears, Goldman Sachs and General Electric.”

These programs feature glowingly euphemistic names: Indiana’s Economic Development for a Growing Economy (EDGE) Tax Credit, the Mississippi Advantage Jobs Incentive Program, and, to emphasize that these aren’t just any old jobs we’re talking about, New Mexico’s High Wage Jobs Tax Credit.

A more fitting title, according to Good Jobs First, would be “job blackmail.” Tax breaks are the trophy state lawmakers offer while trying to pull businesses into their states, or keep businesses from moving out. But while tax breaks are often painted as a mechanism for attracting jobs, they’re actually more aimed at attracting bosses. The researchers explain that in this interstate “economic war,” shuffling businesses geographically does not amount to genuine development:

For example, Kansas gave AMC Entertainment $47 million in PEAK subsidies last year to get the movie theatre chain to move its headquarters from downtown Kansas City, Missouri about 10 miles across the state line to suburban Leawood. In Illinois, Motorola Mobility (now part of Google) last year got state officials to provide $100 million in EDGE tax credits over ten years to keep its headquarters in the Chicago suburb of Libertyville.

And yet at the local level, the wealth tends to trickle upward, not down. Good Jobs First has documented that nationwide, numerous state corporate subsidy programs have failed to foster sustainable, living wage jobs.

According to the report, which covers 16 states, the creative accounting can take many forms: some companies can simply pocket the money that would otherwise be remitted to the state in the form of workers’ income tax. Some programs dish out "incentives" in the form of grants, or credits against corporate income taxes, that effectively offset what workers pay in withholding taxes. The basic principle is that the company gets extra cash, the politicians get some publicity for “job creation,” and the public gets a perilously vague promise of local development, all the while wondering why their state can’t seem to keep schools and hospitals running.

The backdrop to these political theatrics is the yawning economic and fiscal crisis facing states across the country. Joblessness continues to plague states that are showering tax breaks on corporations. (With its recent unemployment rate of 9.5 percent, Mississippi’s “Advantage Jobs” apparently haven't fully materialized.)

Adding insult to injury,  while states spoonfeed tax breaks to big corporations, they are forcing struggling workers to bear a very heavy tax burden. According to the Center on Budget and Policy Priorities, though some states have moved in recent years to provide some tax relief to low-income households, “No new states exempted working-poor families of four from income taxes in 2011, and in almost all of the 15 states where such families still pay income taxes, they saw their income taxes increase.”

On the federal level, the Obama administration too has sought to dangle various tax breaks before employers, supposedly to stimulate hiring. Good politics, bad math: critics say a tax giveaway is simply that—free money that doesn’t directly address a structural jobs deficit.

Maybe the shadiest part of these schemes is the lack of transparency. Companies are generally under no obligation to tell workers that their tax burden is tied to their bosses’ tax break. Good Jobs First Research Director Philip Mattera told In These Times, “We could find no subsidy program that requires workers to be notified on their pay stub or W-2, but Kentucky used to require employers to tell workers about the diversion after the company was approved for the subsidy.”

So on this tax day, if you’re grumpy about how much you owe the taxman, just think about how much workers have ended up paying to the boss man instead.

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