Fixing a flawed tax system

Autopsy the state’s tax code, and behold the rot. A budget heart riven with holes, siphoning equity and fairness.

The problem is congenital. It was created that way — a business and occupation tax, and use-and sales-tax structure that is inherently flawed.

In the post-special session malaise of summer, lobbyists buttonhole lawmakers, pleading the case for industry-specific tax (insert descriptive noun here — “breaks” “incentives” “loopholes.”) Special interests have the juice to lobby to save themselves money, and ensure a positive return on investment. Software companies. Aerospace. Newspapers (we’re curiously partial to that last one.) Consumer interests and the poor? They simply don’t have the leverage.

Washington’s budget heart has 700 loopholes. Rep. Reuven Carlyle, chair of the House Finance Committee, wonders if the number has its own Malthusian pattern, mushrooming beyond the point of sustainability.

“In 10 years will we have 1000, 1250 or 1500?” Carlyle writes on his blog. “How long can we ‘carve out’ industries that are negatively impacted by our economically inefficient system without collapsing the entire framework?”

Carlyle’s frustration was given expression in 2013 during the battle to fund K-12, pursuant to the Supreme Court’s McCleary decision. Part of the challenge was determining whether closing a loophole (everyone is for that) was the same as raising taxes (people don’t like that.) Gov. Inslee was sensitive not to renege on his no-taxes campaign pledge. Do semantics matter?

According to the Washington Department of Revenue, 575 state tax breaks have no expiration date. Well-heeled lobbyists labor to keep it that way.

“Too often we jump to the conclusion that there is simply no political appetite in our state for tax reform to alleviate the weaknesses of our system for people, while simultaneously entertaining endless ‘modest’ fixes that alleviate the inefficiencies of our system on important industries,” Carlyle writes.

Carlyle was responding in part to a proposal advanced by Sen. Nick Harper, D-Everett, and Rep. Kris Lytton, D-Anacortes, to extend the 60-day timeline for the use tax on boats owned by an S Corporation or LLC. Washington is at a competitive disadvantage with neighboring British Columbia, which doesn’t drop the tax hammer on yachts after two months. So, Everett’s Harper is working hard to shepherd a break that will benefit the local maritime economy. He’s doing his job. The problem is a system that invites tax magoozles. What we need, Carlyle argues, is lower rates with fewer exemptions. He’s right.

At some point, lawmakers will need to do more than tinker with a regressive tax structure that demands a full overhaul.

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