Everett, Wash.
Published: Wednesday, February 22, 2006

Legislators keep showering businesses with tax breaks

John Burbank

 Thanks to the economic upturn, our state now has a reserve of more than $1.6 billion. This should make it easier for lawmakers to meet current obligations and make up for the cuts in public services they instituted during the recession.











But the governor and legislators are preaching caution. They are concerned about increasing costs for health care, increasing student populations and increasing needs for services as we baby boomers get older. Let's hope that our legislators are equally wary of piecemeal tax breaks because, after all, we need taxes to pay for public spending.











The problem is that it is a lot easier to get a special tax break in Olympia. Teams of lobbyists specialize in this work. They can generate a compelling reason for each and every individual tax break, but when you put them all together, the state is being robbed of public resources and holes are being shot in our tax system.











The budget passed by the Senate last week contained some new spending - $170 million, $90 million of which was for mandated caseload payments for basic education. But the Senate also gave away $46 million in special tax concessions for this year. In the next two-year budget period, these new tax breaks will balloon to more than $100 million.











The House did pass a bill sponsored by state Rep. Jim McIntire (Seattle) and a passel of both Democrats and Republicans, including Jeanne Darneille and Steve Conway of Tacoma, Skip Priest of Federal Way, John Lovick of Mill Creek, and Toby Nixon and Larry Springer of Kirkland, to require performance audits of tax preferences.











This bill will subject tax expenditures to the same type of review that the voters approved last fall for state spending. The goal is to ensure that these expenditures enhance the greater good, not just the individual advantage of particular businesses. Otherwise, we will continue to be treated to new tax exemptions for special interests.











Here's one: the Legislature is considering a bill to credit the tax on pop syrup against the business and occupation tax. The pop syrup tax was originally passed to fund the Violence Reduction and Drug Enforcement Account. The cost to the state of allowing this exemption to go through? More than $7 million this year and more than $16 million in the next biennium.











Who benefits? One company that testified for this bill was McDonald's. Yep, the same McDonald's that made $2.6 billion in net income last year, an increase of 14 percent over the year before. The same company that has more than 1,800 employees receiving Medicaid health coverage paid for by the state.











The state is spending more than $6 million to enable McDonald's to not pay health care benefits to its workers. And we want to give it a tax break? How likely is it that the tax break will translate into a drop in the price of a Big Mac or that fast food workers, whose average earnings are only $1,200 month, will get a raise?











The Legislature makes big and yet silent trade-offs with tax breaks like these. The Senate agreed to fund 5,000 additional slots for the Basic Health Plan's subsidized sliding scale health coverage for lower-income workers. That cost about $10 million. But one in 10 Washington citizens lacks health insurance, and the number is growing. Why not take back those $46 million in tax breaks and add Basic Health coverage for 20,000 more citizens?











We don't know and can't even track where the money goes from these preferential tax breaks. But we know when we fund the Basic Health Plan that we are providing health coverage for someone who can't get it from his or her employer. Which is the better choice?











Some readers will say that the gross receipts tax on business is unfair, taxing those who lose money as well as those who make money. I agree, and the way to fix it is not to provide special deals for those businesses with the best lobbyists who have access to legislators. If the Legislature were just itching to give away $46 million, it could have been spent in another way: an across-the-board 2 percent reduction in the gross receipts tax in recognition of the increased cost of fuel that all businesses have had to assume, thanks in part to the run-up in oil company profits.











But that's for another time, and another Legislature.











John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org), writes every other Wednesday. Write to him in care of the institute at 1900 Northlake Way, Suite 237, Seattle, WA 98103. His e-mail address is john@eoionline.org.
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