A so-called jobs creation bill proposed last month by state Rep. Kerry Benninghoff allowing companies relocating to Pennsylvania to remit to the state just 5 percent of personal income taxes collected from new hires and keep the rest has changed significantly to allow all Pennsylvania companies to participate.
And it's drawing criticism.
"We think it really crosses a line we haven't crossed before, and it makes people uncomfortable," said Sharon Ward, executive director of the Harrisburg-based Pennsylvania Budget and Policy Center.
The center analyzes economic policies for their impact on the state and is associated with the left-leaning Keystone Research Center.
The center's primary concerns with House Bill 2626 are that, since introduced, it has undergone amendments that changed the scope, could have a negative impact on the state's budget revenues at a difficult time and would legalize a practice normally considered illegal.
Expanding the break
The bill's original purpose was to allow relocating companies to remit to the state just 5 percent of the PIT, according to the proposal from Benninghoff. The new businesses would generate new state revenue and create jobs, he said. Benninghoff, a Republican representing Centre and Mifflin counties, is the chairman of the House Finance Committee.
The bill, also known as "Promoting Employment Across Pennsylvania" or PEP, would allow companies to withhold all PIT taxes from new employee paychecks and keep 95 percent. Companies would have the option of remitting all withheld PIT and then have the state reimbursing them the 95 percent, according to the bill. Companies could remain in the program for up to 10 years, depending on the scope of their hiring and what percentage over the average wage they pay new hires.
Currently, it's illegal for a company to withhold taxes from employee paychecks yet remit only a fraction of those to the state, according to the Department of Revenue.
"You can't do that," Ward said.
In addition, the text does not reference new or expanded jobs but simply would allow companies to keep the PIT for "new employees" hired, according to the bill. In that way, it wouldn't necessarily incentivize job creation as much as allow companies to keep PIT money for regular turnover, Ward said.
"It's been broadly expanded and made unworkable," she said.
There's also concern the bill has a high potential for abuse and would strip the state budget of revenue, Ward said.
When Benninghoff introduced the bill, he said the impact on the state budget would be negligible, because it would apply only to new companies and their 5 percent remittance to the state would be new revenue.
A key amendment to the bill by Lancaster County Republican Rep. Scott Boyd struck that new-company provision and allows any company in Pennsylvania to use the program, according to the bill.
Boyd did not respond to requests for comment on the bill's changes.
Companies that hire as few as five people who didn't work for them in the past year would be eligible, according to the bill. It does apply disqualifiers such as bankruptcy proceedings and delinquent taxes, as well as specific industry and government agency exemptions.
Benninghoff said the changes were "nothing real major" and insists the bill would only be used for job creation with new companies. The program would have more oversight by the Department of Community and Economic Development than most other initiatives, he said. That would include specific contracts with each company and regular reviews and reporting to monitor a company's progress on creating jobs, he said.
In addition, another amendment requires companies that fail to meet hiring obligations under the program would be required to pay back as much as 66 percent of the PIT they kept, according to the bill.
"It's not for any job you create," Benninghoff said.
Benninghoff said he would have preferred not having the amendment striking the new-company limitations, but he doesn't have control over that process. He also said the bill has been successful in 11 other states.
The bill's impact on the state budget under the expanded scope could be large, yet no one has outlined it, Ward said.
"The exact impact on Commonwealth funds as a result of enactment of this legislation is unknown," the House Appropriations Committee wrote in a fiscal analysis from Oct. 2, after all amendments had been added.
Part of the problem in assessing the impact is that the number of eligible companies would be those hiring people at wages equal to the average for a county where the company is located, according to the analysis. That number wouldn't be known until PEP is launched, after the bill's passage.
The average employee in the state makes about $50,000, a benchmark for the jobs to be created in PEP, according to the analysis. At the PIT rate of 3.07 percent, the tax withheld would be $1,535. An eligible company would remit just $77 to the state and keep $1,458, according to the analysis.
With the bill allowing existing in-state companies to participate in the program, there would certainly be less tax revenue going to the state, which would compound budget constraints, Ward said.
In fiscal year 2011-12, the state collected a total of $10.8 billion in PIT, according to the Revenue Department. About $8.3 billion of that comes from paycheck withholdings targeted by Benninghoff's bill. He contends the bill would not cut state revenue from PIT.
Critics have chided governments for programs similar to PEP, saying it's a move that socializes the costs of business expansion while mandating that workers pay taxes to their companies.
It's sometimes referred to as "paying your boss," according to an article on the liberal blog ThinkProgress.
Benninghoff said he wasn't concerned with such politically charged rhetoric and found some workers who like the idea. He said it's simply a new way to boost jobs in the state.
"If we're not going to be creative, these companies are going to go somewhere else," he said.
An amendment from Rep. Phyllis Mundy, a Luzerne County Democrat, would require companies to notify employees about a company's participation in PEP and that their PIT withholdings are going back to the company.
"I'm very conflicted about this bill," said Mundy, the minority chairwoman of the finance committee.
Mundy said she voted for Boyd's amendments and supported the bill with the understanding that it would bring new companies to the state and promote job creation. But as it changes, it's looking more like there could be problems, she said.
She's concerned the bill will only incentivize moving jobs from one place to another, not creating new ones. She said she hopes the DCED wouldn't allow it to be used that way.
Passage of the notification amendment banked on dropping a monetary cap, Mundy said. She said she would not support the bill if it comes back from the Senate without employee notification.
Still, she comes back to that unease about the bill.
"I'm beginning to believe we're relying too heavily on tax cuts, tax credits and other tax incentives for job creation," Mundy said.