Everett, Wash.
Published: Wednesday, May 17, 2006

Spending isn't the problem, it's all those state tax breaks

John Burbank

 Last month I wrote about the Legislature's seeming addiction to piecemeal tax breaks. So it was no surprise that two weeks ago, state budget officials announced a projected budget deficit for the next two fiscal years of $700 million.

But then last week the state's economic forecast council announced that revenue growth continues to exceed projected calculations. In fact, we are $38 million ahead in revenue just for the previous month.

We can learn two lessons from this back-and-forth between spending needs and revenue projections.

1. It is difficult to predict the future.

If the budget officials had the most recent revenue collection report in hand, they may have lowered the projected deficit. But let's give them the benefit of the doubt. That seems what lawmakers are doing.

"I wasn't prepared for a number that big," said state Sen. Margarita Prentice, D-Renton.

Others reacted with the typical accusation that the state is spending too much. Sen. Joe Zarelli, R-Ridgefield, said the gap shows that Olympia has a spending problem. I wonder what spending problem Zarelli is talking about. Could it be the Legislature's investment in lower class size in K-12 education? Or the increase in pay for home-care workers? Or funding for WASL remediation, so our kids have the chance to learn and pass this benchmark for academic success?

These are all initiatives that the Legislature has approved over the past three years. Zarelli himself was a sponsor of the bill to increase compensation of home-care workers who provide long-term care to elderly and disabled citizens. And that's a good thing to do.

2. So we don't have a spending problem.

The function of government is to provide crucial public services in our democracy. But we do have a problem with giving away public money to private businesses.

Over the past three years, Democrats and Republicans have joined together in digging themselves into a hole by continuing to poke holes in our tax structure. The result is that we have almost half a billion dollars less to invest in public services than we would have had if the Legislature had learned to just say no to each request for a special exemption to paying taxes. Combine that half a billion with the unexpected increased revenues we are enjoying now, and the projected deficit disappears.

Of course, from the perspective of an individual business it makes perfect sense to get as many tax breaks as possible. This free-rider syndrome enables you to reduce your marginal costs, while your company is entitled to the same transportation, safety and education infrastructure as your competitor who doesn't get the tax break. And you can clothe your request for an exemption in the standard argument that it will create jobs.

For example, high-tech firms enjoy a package of tax exemptions for research and development, renewed by the Legislature in 2004. Those tax breaks will amount to $222 million in the next two years. But would the software industry have invested in research and development anyway in our state, with or without tax credits? With the global technological competition in software, the industry must invest in research and development. Shareholders and private investors would demand it.

What would happen if the Legislature decided to spend that $222 million for full-day kindergarten? The cost would be primarily for more teachers, about 3,000 each year. Each new teaching job generates another job in the economy, thanks to the multiplier effect of personal consumption and the stimulation of production in other industries.

So an investment of $175 million in the public sector for teachers creates 6,000 jobs. And the state is making a fundamental step for preparing our children to learn. This investment pays dividends for years to come, for our communities and for those high-tech companies that need well-educated workers who have benefited from a high-quality and well-funded public education system.

When the Legislature reconvenes in January, our elected representatives will have a chance to measure our economy's needs for public education and for a highly educated workforce, and compare that to the myriad of tax exemptions that favor one company over another and suck out money from public services. Then perhaps they will begin to plug some of the leaking holes in the dike in order to realize the greater good for all of us.

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.
© 2009The Daily Herald Co., Everett, WA