Remember the state fiscal crisis, when state treasuries were running out of money because revenues (aka taxes) were down and cuts to education, health care, public safety and roads were the flavor of the day?

One of the little known factors behind this loss of revenue to state treasuries—and this is hard to believe—is that in 19 states, with Pennsylvania on the verge of becoming number 20, corporations are pocketing workers’ state income taxes instead of sending the weekly withholding to the state where it could be used to help pay for education, health care, public safety and roads.   

It may be a scam, but it’s legal, done in the name of “job creation.” The theory goes if states allow corporations to pocket workers’ withholding and add it to their profit margins, companies will want to move into those states and create jobs. Balderdash!   

It is nothing more than corporate welfare, as David Cay Johnson exposes in his new book, The Fine Print: How Big Companies Use "Plain English" to Rob You Blind.

Many employers in 19 states can now keep state income taxes withheld from paychecks. General Electric, Goldman Sachs and Proctor & Gamble have these deals, along with a host of foreign firms from the German computer maker Siemens to the Swedish appliance maker Electrolux and a host of Canadian, European and Japanese banks. In all, more than 2,700 companies get to pocket the state income taxes withheld from some of their workers' paychecks.

Johnson points out that several states opened their tax treasury to companies after corporations threatened to move out of state. In Illinois, he writes:

Navistar, maker of big diesel trucks for industry and the military, threatened to go to Alabama or maybe Iowa. In return for staying put, Navistar will pocket almost $65 million. The big winner, though, was Motorola Mobility, the cellphone maker. Just for promising not to move out of state and take 3,000 jobs with it, Motorola gets to siphon $136 million from the paychecks of its well-paid high-tech workers. As if to make this transaction all the more interesting, Motorola Mobility agreed to be acquired by Google soon after the state made the big tax deal. The Motorola board then paid its CEO, Sanjay Jha, to go away. He received $66 million. Thus, Illinois taxpayers underwrote his golden parachute, which amounted to roughly half the value of the worker taxes flowing to Google. Google hardly needs a subsidy from Illinois taxpayers.

Read more from Johnson’s book at Truthout.

In Pennsylvania, a bill is waiting on Gov. Tom Corbett’s (R) desk that would let companies add workers’ withholding to their corporate coffers instead of the public treasury. Daniel Denvir of the Philadelphia City Paper writes that if Corbett signs the bill:

Your taxes would get withheld by your boss like normal, but they would then keep them and spend it on private jets or monogrammed bathroom fixtures or whatever instead of turning them over to the state—turning your tax dollars over to the state being the whole reason they were ostensibly "withheld" in the first place.

“In some sense,” says Denvir, “making workers pay taxes directly to their boss is just cutting out the middleman.”

Lavish corporate welfare in the form of taxpayer subsidies to business is the norm. States fall over each other in a rush to make themselves look the most appealing—meaning low taxes and wages alongside weak labor and environmental protection—and then sweeten the deal with specially tailored giveaways to lure specific companies (see Corbett's $1.6 billion tax credit to Shell oil).

You can read more about the Pennsylvania bill from Good Jobs First and the Pennsylvania Budget and Policy Center.