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Politics & Government

Research Center Denounces New State Tax Credit Proposal

The left-leaning Pennsylvania Budget and Policy Center (PennBPC) is criticizing a new tax credit proposal passed out of the state legislature last week, saying it allows companies to "pocket" income tax withholdings of new employees with little accountability.

House Bill 2626 would create the "Promoting Employment across Pennsylvania" (PEP) program. The initiative is meant to spur job creation by allowing qualifying companies to keep new employees' income tax withholdings, which normally would go to the state.

However, PennBPC Director Sharon Ward said companies near state lines can exploit such laws by moving their facilities and employees across the border and claiming to have created jobs. She said similar tax credit programs have had little effect in nearby states.

"In Ohio, the attorney general there was asked to do a study of this tax credit and found that most of the companies did not create the number of jobs that they promised to create," said Ward.

During floor debate, the state Senate amended the bill to include limitations on its scope. For example, the Senate added a $5 million cap and a five-year sunset provision to the legislation, as well as stricter reporting requirements. Under the amended bill, companies would have to create at least 250 new jobs to be eligible for the tax credits. However, Ward said she's still not satisfied.

"What we need to look at is, what are we not funding?" said Ward. "It's very unusual to do a tax bill outside the budget process. So, the question is, 'Is this $5 million going to be coming from county human services, or from education, or will it increase local property taxes?' That's the tradeoff."

HB 2626 is sponsored by Representative Kerry Benninghoff (R-Centre/Mifflin), who did not return a call for comment. After his legislation passed the state House on October 15, Benninghoff wrote in a brief statement:

“Failing to enact this bill into law would mean a reduction in potential jobs and the loss of potential revenues for our Commonwealth, municipal governments and our schools.  We simply can’t afford not to take action on this job-creating legislation.”

The bill is now on Governor Tom Corbett's desk.  The governor is expected to sign the bill.