ST. LOUIS – An increasing amount of money withheld from worker paychecks is going for corporate subsidies, a Washington, D.C. think tank found, and Missouri is one of the biggest offenders.
Good Jobs First says that $700 million a year in state income taxes is being funneled to business and industry in 16 states, including some of the largest American corporations. The study found that as states try to keep jobs within their border, they may be giving away too much in tax incentives.
“You assume that money goes to school or libraries, but in these states it goes to the employers,” said Kasia Tarczynska, the Good Jobs First research analyst who studied Missouri.
The group, which released in April its multi-year study of corporate subsidies, found that Missouri is the only state that allows employers to keep 100 percent of its employees’ state withholding taxes through two of its programs – the Quality Jobs Program and the Missouri Automotive Manufacturing Jobs Act.
Only five programs allowing the complete withholding of state taxes exist across the United States.
Missouri’s automotive act was enacted in 2010, largely to keep Ford from closing its manufacturing plant in Claycomo. It allows Ford to keep the state withholding for 10 years, and for its suppliers to keep their workers’ Missouri taxes for five years. The recipients must invest at least $50,000 per existing job to qualify. The program is expected to cost $15 million in 2012 – a cap set by the legislature – with Ford getting about two thirds of the total. The program will cost Missouri $150 million in lost tax revenue over the next decade.
The much broader Quality Jobs Program lets small and expanding businesses keep 100 percent of withholdings up to five years as long as they create 20 new jobs in rural areas and 40 in urban areas. Technology firms retain withholdings up to 6 percent of new jobs payroll for five years, with high impact firms retaining 7 percent of new jobs payroll. Technology firms must employ 10 workers to qualify, while high impact firms must have 100 workers.
The cost of this program has risen from just under $7 million in 2008 to more than $51 million in 2011, Good Jobs First found.
The Missouri Department of Economic Development ‘s annual report says there were 189 projects from 159 businesses in the program at the end of 2011.
The Quality Jobs Program was put into place by the Missouri General Assembly in 2005 when St. Louis-based pharmacy benefit manager Express Scripts announced it was considering other states to locate its new headquarters. After the legislation passed Express Scripts stayed, and the company has since collected $17 million in subsidies.
The company was criticized for outsourcing many of its U.S. jobs overseas, and the St. Louis Post-Dispatch reported that profits grew 325 percent between 2004 and 2010 while employment only climbed 28 percent.
In the battle to keep companies in place, the squeaky wheel continues to get more grease. Peter Mueser, a labor economics professor at Missouri University, said legislators are naturally going to enact programs such as those in the Show Me State to prevent firms from leaving.
“They’re not going to lower taxes on the ones who plan to be here long term,” Mueser said. “This gives firms incentive to try to move so they can be eligible for those subsidies.”
Kansas gave $47 million in tax incentives through its Promoting Employment Across Kansas program to AMC Entertainment in 2011 to convince the movie theater chain to move its headquarters from Kansas City to Leafwood 10 miles across the state line.
Tarczunska said such “interstate job piracy” is common.
“Companies move between Missouri and Kansas all the time,” she said.
The issue became so prevalent that 17 Kansas City-area business leaders signed a letter last April decrying the business border war between Kansas and Missouri. The letter said that the tactics provided “no net economic gain to the community as a whole and a resulting erosion of the area’s tax base.”
In January, the Missouri House Committee on Government Oversight and Accountability questioned representatives from the state’s Department of Economic Development about the Quality Jobs Program after DED’s own report showed that less than 6,000 jobs had been created although more than 23,000 were promised through the program.
Sen. Bill Stouffer, R-Napton, who is leaving the Senate this year after completing two terms, supported the Quality Jobs Program, but voted against the automotive act.
“At least with the Quality Jobs Program we have the entrepreneur making the decision to invest his own money before getting public money,” he said.
Stouffer said he’s become less favorable toward aggressive corporate subsidies during his time in the Missouri General Assembly.
“I think the legislature should foster a friendly business climate for everybody,” he said. “That climate should be fair with an opportunity for growth.”
With Kansas to the west battling with Kansas City and Illinois to the east trying to pry corporations away from St. Louis, Stouffer admits lawmakers are in a tough position of not giving away too much while retaining jobs for residents. But he said they must come up with sensible programs that don’t encourage businesses to pack their bags for neighboring states.
“I don’t like blackmail,” Stouffer said. “If we continue giving it away we’re going to continue to get blackmailed.”