Gov. Tom Corbett says his attorneys will examine a bill approved by the Legislature to allow companies that add enough new jobs to keep most of the state personal income taxes withheld from those workers.
The legislation would establish a program in which companies that agree to create at least 250 new jobs in Pennsylvania within five years, with 100 of those jobs in the first two years, would be eligible to retain 95 percent of the personal income taxes withheld from new employees. Companies would have to pay employees at a rate equal to or greater than the median income in the county.
“This is basically a performance-based incentive,” said sponsoring Rep. Kerry Benninghoff, R-Centre and chairman of the House Finance Committee. “We’re not putting liability on the taxpayers. We’re putting the onus on the companies to earn the incentive.”
The proposal passed the Senate 33-16 and the House 111-80 on Wednesday, the final day of legislative voting before the election. Asked Friday during an appearance in McKeesport, Mr. Corbett said he would not comment on whether he will sign it.
“It has not reached my desk yet, and I’m going to let my lawyers review it,” he said.
Representatives of the Pennsylvania Business Council and the Pennsylvania Manufacturers’ Association said they had neither requested the program nor taken a position on it. David Patti, president and CEO of the Pennsylvania Business Council, said he did not know of another tax-incentive program in Pennsylvania that had used a similar mechanism.
“At first blush reaction, withholding someone’s personal income tax and then letting the employers keep it, I can see someone saying, ‘Can we do that?’ ” he said.
Critics such as Sharon Ward, director of the left-leaning Pennsylvania Budget and Policy Center, said allowing companies to withhold and retain personal income taxes is fundamentally different than traditional incentives that might provide a credit against a company’s tax liability.
“It really crosses the line in economic development programs or tax credit programs by allowing employers to pocket employees’ withholdings, which I think makes a lot of people uncomfortable,” she said. “Certainly it can give the impression that individuals are paying their bosses for their jobs.”
Sen. Jim Ferlo, D-Highland Park, shared in that skepticism and voted against the measure.
“This is just not a good way, an effective way, of targeting a valuable, limited tax dollar,” he said. “Just the philosophy of this: You’re going to pay your wages to the company instead of the state government.”
Companies would have to be for-profit entities whose work is not in gambling, retail, education or public administration and which are not religious organizations, utilities, restaurants or bars. They would be required to offer health insurance to full-time employees and pay at least half of the premium. Companies could not be delinquent in their taxes.
Participating companies would be provided further incentive to offer high wages. Wages equal to the county median would qualify a company to retain the taxes for seven years, while wages at 140 percent of the county median would allow the company to participate for 10 years.
“We’re trying to establish businesses that are going to have good family-sustaining jobs, not minimum-wage jobs,” Mr. Benninghoff said.
David Taylor, executive director of the Pennsylvania Manufacturers’ Association, said the legislation was brought to his attention Friday and that he was studying it. Mr. Taylor said he was inclined to look favorably upon proposals by Mr. Benninghoff, but that in general his organization supports making the state’s economic climate more competitive by lowering the baseline cost of doing business, rather than by offering rewards for particular actions by a company.
“It’s much more organic than mechanical,” he said. “We’re a little bit less excited about, hey, if you do this one specific thing the government wants you to do, then we’ll give you a treat for that.”
The average annual wage in Pennsylvania is about $50,000, according to a fiscal impact analysis prepared by Republican staff of the House Appropriations Committee. With the state personal income tax rate at 3.07 percent, a company participating in the program would retain $1,458 a year while remitting $77 to the state for an employee on that salary.
The total amount of tax revenue retained by companies through the program would be capped at $5 million per year.
Mr. Benninghoff said there would be no loss to the taxpayers because no state money would be expended and because without the program, called Promoting Employment Across Pennsylvania, the affected jobs would not exist to generate personal income taxes in the state.
Mr. Ferlo said he believed the proposal was targeted at helping a particular company but would not name the company. Mr. Benninghoff said he had not directly spoken with any company about the proposal. The idea for the program was brought to Mr. Benninghoff’s attention, he said, by the head of Chamber of Business & Industry of Centre County, who previously had worked in economic development in Kansas, where a similar program is in place. The Centre County chamber president and CEO, Vern Squier, said companies have not yet expressed interest in the program, as it has not become law.
“We started this conversation many months ago with the idea that such a tool would be useful in our toolbox here,” Mr. Squier said. “That doesn’t mean it has to be used or not used.”
The Department of Economic and Community Development would conduct annual reviews of companies participating in the program. No new contracts could be established after Jan. 1, 2018, unless the program was reauthorized.
The identities of corporations accepted into the program “absolutely” would be publicly available, Mr. Benninghoff said.
Companies would be required to notify workers whose personal income tax withholdings are retained. If a company was to leave the state within five years following its final year in the program, it would be required to refund to the state a portion of the retained taxes.