Wonder why states are broke? It isn’t just the global financial crisis induced knock-on effects of a plunge in tax receipts and a rise in social safety net payments. Nor is it just pension fund time bombs (note that despite the press hysteria, the problem is unmanageable only in a comparatively small number of states, with New Jersey way out in front, thanks to 15 years of the state stealing from the workers’ kitty, plus a decision to take big risk at exactly the wrong moment, in 2007, which resulted in large losses). A significant unrecognized culprit is companies managing to divert tax revenue from stressed states to their coffers. The device, in this case, is demanding the right to keep state income taxes withheld from employee paychecks.
David Cay Johnston detailed this stunning development in an April 12 column and a related interview late last week (hat tip p78). He suggests that this movement is driven by banks, since financial players and private equity fund owned firms are heavily represented among these corporate welfare queens. His discovery seems to have gone largely unnoticed and I hope readers circulate this clip widely.