Gov. Inslee, GOP spar over vetoed tax break for manufacturers

EVERETT — Gov. Jay Inslee defended his decision to veto a tax break for manufacturers, saying it felt unfair to him to raise property taxes on homeowners while giving business interests “sugar candy tax cuts.”

Inslee paired the higher property taxes with the nixed tax break in a meeting with The Herald editorial board Thursday. Republicans say the issue isn’t settled.

“I know almost every property owner in Snohomish County is going to get a tax increase,” Inslee said. “Going to them and explaining we just increased your taxes, but cut it for a business person with a good lobbyist — that’s not a good numerical equation.”

Lawmakers agreed to an overall state budget that includes the single largest property tax increase in state history to fund public schools as demanded by the Supreme Court in the McCleary case.

In the same budget, lawmakers also agreed to extend to manufacturers the same tax break that Boeing and other aerospace companies already receive.

The manufacturing tax break was approved by a healthy majority of both Republicans and Democrats, but Inslee said he never agreed to it.

“Having this happen at 3 o’clock in the morning just in the last day before a government shutdown is not the way to do these policies,” Inslee said. “I’m convinced it was the right decision. I thought about it carefully.”

The veto infuriates Republicans who say the tax break was part of the overall state budget negotiations. Senate Majority Leader Mark Schoesler, R-Ritzville, disputes that it was a surprise for Inslee.

“This is bull manure,” Schoesler said. “This bill was not a new idea. It was in the negotiations. I can guarantee that his liaison played an important part in the negotiations. When his liaison shakes hands with my committee chair, I call that a deal.”

Republicans are still weighing their options, including attempting an override of the veto. Schoesler noted that the manufacturing tax break received a two-thirds majority in both the state House and Senate.

“For a Republican, it’s a pretty easy decision,” Schoesler said. “For a Democrat, going against your governor, it’s a more difficult decision. Would the Speaker of the House do the right thing and go against his governor? I don’t know. I haven’t asked the speaker.”

Schoesler stopped short of saying that Republicans would block the capital budget over Inslee’s veto: “We’ll keep our options open. It’s not the highest matter we’re dealing with. It’s a source of irritation.”

The capital spending bill does remain in limbo, but over a different issue: GOP senators want an agreement on water rights policy before allowing the capital bill to move forward.

It wasn’t clear exactly how many Snohomish County businesses would have benefited from the sunk manufacturing tax break. Businesses from Port Townsend and Port Orchard to Pullman were pushing for the break, Schoesler said.

The manufacturing tax break bill cleared the Senate on a 33-16 vote and the House on a 83-10 vote. Just days later, House Democrats urged Inslee to veto the provision.

The tax break would have lowered manufacturers’ business and occupation tax rate from .484 percent to .2904 percent. The Legislature first approved that lower rate for Boeing and the aerospace sector in 2003 and in 2013 extended the rate until 2040 as part of a nearly $9 billion tax break to ensure that the 777X was produced in Everett.

Extending the aerospace tax break to other manufacturers would have amounted to about $64 million over the next four years.

The tax break would have benefited Boeing, Schoesler said. The World Trade Organization is arguing that the Boeing tax break is unfair. Extending this tax break to all of manufacturers in the state would have undercut the WTO’s claims, he said.

“If Boeing loses with the WTO, we’ve got to solve the problem,” Schoesler said. “This (tax break) would effectively end the WTO arguments.”

Inslee said Republicans approached his staff with the idea for the manufacturing tax cut in late June during the third special session.

“My staff told them that we thought it was a bad idea and should not be offered and they dropped it,” Inslee said. “Their next offer it was not in their offer … The next thing we heard about it was dawn after the 3 a.m. deal where we were not in the room.”

He said his staff were not invited to that late night meeting.

“Now they’re caterwauling and griping, because they failed to ask the right questions at the right time,” Inslee said. “That’s on them. We were not asked into the room. These are legislators dealing with legislators.

“I’m a separate branch of government. I represent the executive branch. The executive branch was not in that room and not part of that agreement. Well why not? You’ll have to ask the legislators.”

Schoesler believes that Inslee caved to his party’s base and the House Democrats who called for the veto. He noted that House Democratic leadership didn’t sign the letter to Inslee.

“I think his veto is indefensible,” Schoesler said. “He talks about the dark of night and staff didn’t know and those things, the B&O tax idea had a public hearing.”

Inslee said that manufacturing tax break should have come with a sunset clause and a provision to determine how much job creation it actually does.

“Everybody’s taxes stays the same in the business community; they’re paying the same taxes before the veto as after the veto,” Inslee said. “This did not increase anybody’s taxes. It’s really important to realize that. What the business owners thought they were paying next year, they’re still going to be paying.”

The state Department of Revenue said that about 20 percent of the tax cut would benefit oil refineries. Inslee points out these companies are headquartered out of state.

Schoesler said that the “oil refineries he hates so much” provide many $100,000-a-year, blue-collar jobs in Western Washington.

He thinks that the veto will hurt chances for lawmakers to come to bipartisan agreements in the future.

“I’ve never seen a governor walk away from a deal that’s been worked quite like this,” Schoesler said.

Jim Davis: 425-339-3097; jdavis@heraldnet.com; @HBJnews.