The recent announcement that Diebold, Inc. would be laying off hundreds of employees from its Ohio headquarters despite having received massive job retention subsidies designed by the state specifically for its benefit came as little surprise. (We’ve seen it before with Sears, Dell, Boeing, ad naseum.) The same day, Good Jobs First released “Paying Taxes to the Boss” a report in which we describe the disquieting economic development practice of states allowing employees’ personal income taxes (PIT) to be leveraged as corporate job subsidies.
Among the 22 programs we analyzed in our report is Ohio’s Job Retention Tax Credit (JRTC), which underwent controversial changes last year under the Kasich administration. At that time, both American Greetings and Diebold were considering relocating their corporate headquarters out of the state. In response to this job blackmail, Ohio legislators tweaked the JRTC rules to make the credit refundable for companies with a written offer of subsidies from another state.
In the end, Diebold signed a $55 million subsidy agreement (including $30 million in JRTCs) with the state in exchange for a promise to retain 1,500 workers and construct a new headquarters facility. The catch? Diebold employed 1,900 people in Ohio at the time the subsidy agreement was finalized. One year ago our prescient friends at Plunderbund correctly predicted what would come next – the state would be subsidizing Diebold while the company slashed its workforce. Last Thursday the company announced its intent to move 200 jobs to India, bringing its total state employment down to approximately 1,550 workers.
Diebold’s reasoning for seeking job subsidies from other states is a perfect example of how PIT-based programs accelerate the race to the bottom. The company claimed it was unable to compete after its chief rival, NCR Corp. relocated to Georgia with the assistance of the state’s Mega Project Tax Credit, yet another PIT subsidy spending program. (For descriptions of Georgia’s many personal income tax diversion subsidies, see “Paying Taxes to the Boss.”)
The use of workers’ personal income taxes as corporate giveaways fuels already rampant interstate job piracy. PIT diversions negate the benefits that economic development projects should have on diminishing state tax revenues. At this rate, it’s not even helping retain jobs in Ohio. The Diebold situation is proof of that. Lawmakers should not need more evidence that this is failed economic development policy.
Unfortunately, its failure to generate real economic development hasn’t stopped more states from adopting this foolhardy practice. Last year Oregon created the Business Retention and Expansion Program, a subsidy that will allow recipient businesses to receive the taxes of workers as forgiveable loans.