HARRISBURG - Pennsylvania could have a new pitch for companies looking to relocate: Settle in the Keystone State, and keep the heaping pile of money your employees pay as state income tax.
It's the concept of a new jobs-boosting proposal from state Rep. Kerry Benninghoff, R-Bellefonte, chairman of the House Finance Committee.
The proposal, called the Promote Employment Across Pennsylvania Program would let qualifying businesses keep 95 percent of the personal income tax that their employees would otherwise pay to the state. The other 5 percent would go to the state.
Typically, those personal income tax dollars go right to the state's general fund, with all wage-earners chipping in to fund the state services.
"If the goal is to try to make the tax system more transparent and comprehensive to not only businesses but individuals, a program like this could take the system in the opposite direction," said Pete Sepp, executive vice president at the tax reform advocacy group National Taxpayers Union in Alexandria, Va.
Certainly a portion of state income tax dollars already goes to private businesses through loans or grants offered through the Department of Community and Economic Development. A program like PEP would cut out the incentive middle man, giving tax dollars directly to the company.
"We tend to view tax relief programs not as necessarily costing the state or others. It's really revenues that the state or local government just won't see that it would otherwise collect," Sepp said.
Benninghoff said the current system of offering tax breaks keeps governments from collecting revenue at all. With PEP, new companies would still pay local property and state sales taxes, and in some cases, state corporate net income taxes.
And, there's no direct cost to the state, he added.
"We're not just handing them something. They're earning it by coming here, establishing themselves," he said. "They have to earn it by creating the jobs for the incentive to take place."
To qualify, businesses must be existing, for-profit entities relocating in Pennsylvania that pay at least 50 percent of health insurance premiums for the employees. Excluded from the program are retail stores, utility companies, food service companies or public administration or education services.
The proposal comes at a time when the state's unemployment is worsening. More than 500,000 Pennsylvanians are out of a job and looking for work, according to the state Department of Labor and Industry.
In August, the state's unemployment rate hit 8.1 percent, the same as the national average.
Nate Benefield, director of policy analysis at the Commonwealth Foundation, a free-market think tank, said that lowering the corporate income tax would be a more meaningful economic development tool. Specialized tax credits only help certain businesses in the short term.
"You're going to see jobs created and new hires if you enact this, but you're not going to see what would happen if instead of this you lowered the personal income tax or the corporate income tax for everyone," Benefield said.
