PEP, its supporters say, will spur job creation in the commonwealth by allowing qualifying employers to keep 95 percent of personal income taxes collected from new hires' paychecks.
What we see is yet another loophole in the state's already out-of-whack corporate tax code — one that offers enticing rewards to some companies while excluding others, which is hardly how a free market is supposed to operate. In fact, it is widely accepted that the bill, introduced by state Rep. Kerry Benninghoff, was aimed at one company he hopes to lure to Centre County.
Expectations set for employers who want to take advantage of PEP are high: A company must create a minimum of 250 jobs over five years. It also must pay at or above the average wage of the county in which it locates.
So right off the bat, the bar is set too high for the majority of Pennsylvania businesses, since they are small and incapable of growing at that pace. In addition, they are put at a competitive disadvantage since it becomes harder to hire the best workers or lower costs.
Pennsylvania is not the first state to give a PEP-like program a try. Neighboring Ohio implemented a broader version of PEP 20 years ago, and results have been spotty. Nearly every year of the program, between 20 and 30 percent of companies dropped out before meeting their obligations; in most years, the state ended between 20 and 40 percent of participating projects without seeking repayment of taxes.
Critics of H.B. 2626, such as the Commonwealth Foundation, note that if all the "special" incentive programs and other tax wrinkles were removed from the corporate tax code, the general rate could be lowered significantly for all businesses without affecting state revenue — a tangible, long-term benefit for everyone.
There's nothing to dislike about that idea.
The reality is, though, that the legislature opted for PEP and the program is likely to be around until it expires in 2018. There's not much to be done about that now.
However, a company that qualifies for PEP would be foolish not to go for it. Inequities in the marketplace are there to be exploited and, while it lasts, this one looks to be juicy for the few that fit the bill.