Report: New Jersey Leads the Nation in Using Worker Tax Withholdings to Subsidize Corporations Rather Than Pay for Public Services

New Jersey diverts more state income taxes from worker paychecks to corporations than any other state in the nation, according to Paying Taxes to the Boss: How a Growing Number of States Subsidize Companies with the Withholding Taxes of Workers, a study published today by Good Jobs First, a nonprofit, nonpartisan research center based in Washington, D.C.

The Business Employment Incentive Program (BEIP) has cost New Jersey $1.1 billion since its inception in 1996; the tab in Fiscal Year 2011 alone was $178 million. This tax revenue could instead be used to fund vital public services like education, transit and public safety. [A full list of BEIP grants awarded and dollar amounts dispersed through March 31, 2012 is available here.]

“While New Jersey’s working families pay more and get less because of devastating budget cuts to education, transit, and public safety, Governor Christie continues to hand over tax revenue to bailed-out banks and big corporations,” says Bill Holland, coordinator of the Better Choices for New Jersey campaign. “This is one time when New Jersey doesn’t want to be number one,” he added.

Goldman Sachs has received $80.8 million in BEIP subsidies since 1997, most of it to move workers from across the river in New York City. While economic development officials say that deals such as this one have created thousands of jobs, New Jersey is being deprived of one of the key benefits of those jobs – income tax revenues – by the very nature of the BEIP program.

“Diversion of personal income tax revenues into subsidies violates how economic development has been defined,” says Good Jobs First executive director Greg LeRoy. “States are draining a revenue source that helps many of them address structural deficits.”

The most expensive program is New Jersey’s BEIP, which in FY2011 approved new grants worth up to $73.2 million over their multi-year terms and disbursed $178 million during the year for previously approved contracts. Among states with subsidy recipient disclosure, those with the largest number of participants in PIT-based programs are: Ohio (567), Kentucky (509), Illinois (315), New Jersey (306) and Indiana (283).

New Jersey’s BEIP program diverts to the employer up to 80 percent of state personal income taxes paid by each new employee for a period of up to 10 years, even if the job existed in another state and is simply “new” to New Jersey. Companies initially remit the full withholding taxes collected from workers, but are later given a grant equal to a large portion of those remittances. The total subsidy is capped at $50,000 per worker.

The theory behind BEIP is that the state would not have realized any revenue without the new job, and that other benefits – such as sales tax revenues on increased spending by the new employee – will trickle down. But by awarding many of the most lavish subsidies to financial and insurance firms relocating to Jersey City, the state risks a situation where the only trickle-down money it gets comes from office workers eating lunch, as many of those workers head right back to New York City after the day is done.

“I think we can all agree that New Jersey needs to create high-value jobs, but we can’t sacrifice the prosperity of future generations to do so,” says Jon Whiten, a spokesperson for New Jersey Policy Perspective. “But by taking tax revenue away from New Jerseyans and giving it instead to corporations, that’s exactly what we’re doing.”