Boeing’s 777X, which is built in Everett in part thanks to a state tax break. (Andy Bronson / The Herald)

Boeing’s 777X, which is built in Everett in part thanks to a state tax break. (Andy Bronson / The Herald)

Repealing Boeing’s big tax break could be a bumpy ride

It will be ended to avoid a trade dispute. But workers want Boeing to make changes if it’s later restored.

OLYMPIA — A bill repealing a lucrative tax break for the Boeing Co. encountered a little political headwind Tuesday.

The legislation aims to resolve an international trade dispute between the U.S. and the European Union and prevent billions of dollars in retaliatory tariffs on the aerospace giant’s planes, its suppliers’ products and other Washington exports such as fruit, wine and seafood.

“No one here wants to see that happen,” Bill McSherry, Boeing vice president of government operations, told the state House Finance Committee. “Therefore, even though repealing the current aerospace tax rate will add costs to our company and our industry, Boeing fully supports and has advocated for this legislation.”

The committee was considering House Bill 2945 to erase Boeing’s preferential business-and-occupation tax rate, which has saved the company hundreds of millions of dollars since 2003. In 2013, the tax break was extended to 2040, helping convince the company to build the new 777X model in Everett.

The tax break has long been an element of a high-stakes tiff involving the World Trade Organization, Boeing and rival European jet-maker Airbus.

The WTO has ruled that both Boeing and Airbus are the recipients of illegal subsidies from host governments. And Boeing and Airbus have accused each other of failing to take steps to end the disputed subsidies.

Last March, the World Trade Organization ruled that Boeing received illegal U.S. subsidies via tax breaks from Washington that damaged sales of Airbus planes. It concluded that particular tax break — which saved Boeing $99 million in 2018 — violated international trade rules. Non-compliance opens the door to the European Union imposing tariffs against U.S. and Washington goods.

At Tuesday’s hearing, Lisa Brown, director of the state Department of Commerce, said those tariffs could total $22 billion. Of that sum, $7 billion is targeted at the state’s aerospace industry, with roughly $260 million in tariffs on Washington fruit, seafood, wine and other non-aerospace exports, she said.

Supporters, including aerospace suppliers who would be forced to pay a higher tax rate too, stressed that the bill’s passage would respect international trade rules and avert tariffs.

“The trade-off between tariffs and a tax increase is a no-brainer,” said Mike Brown of Aero-Plastics in Renton.

But a provision in the bill to automatically reinstate the lower tax rate, should Boeing and the WTO reach an agreement, is stirring opposition.

Aerospace workers, union leaders and social progressives want the state to require Boeing to comply with accountability measures related to employment levels and training before the tax rate is allowed to snap back to its current level.

“We believe that any ‘snap-back’ provision that does not also include effective measures to maintain and grow the aerospace workforce in Washington is a continuation of a policy that has failed to provide the intended benefits to our aerospace workforce and our state’s taxpayers,” said Brandon Anderson, legislative director for the Society of Professional Engineering Employees in Aerospace (SPEEA).

Since the 2013 extension, Anderson said, 3,629 SPEEA union jobs have been moved to other states such as Oklahoma and South Carolina, and other countries, including Ukraine, India and Russia, “all while the Boeing Co. takes advantage of the tax cuts funded by our taxpayers.”

“A no-strings-attached ‘snap-back’ policy would continue to incentivize the outsourcing and off-shoring of Washington’s aerospace jobs,” Anderson said.

Larry Brown, president of the Washington State Labor Council, said the statewide organization backed the tax breaks in 2003 and 2013, then watched Boeing reduce its workforce in Washington by thousands.

“The aerospace industry will act in its own self interest and the state should consider doing the same,” he said.

Jon Holden, president of the International Association of Machinists and Aerospace Workers District 751, said lawmakers should not agree to a snap-back unless Boeing commits to building its next plane in Washington.

After the hearing, Boeing spokesman Bryan Watt said: “We fully support the legislation as introduced and won’t speculate what may or may not happen in the legislative process.”

It’s not clear where Gov. Jay Inslee stands on this point.

He has acknowledged that bills in the House and Senate call for a process that could lead to restoring the tax incentive. Inlsee has not said publicly if he thinks it is a good idea and whether there should be new conditions.

“As with all bills, we know there will be tweaks and adjustments along the way,” Inslee spokeswoman Tara Lee wrote in an email. “We watched the hearing today, and we will continue to monitor the conversations in the Legislature and with the company.”

In the meantime, repealing the measure will provide an estimated $134 million for the current budget, according to a fiscal note.

Democratic budget writers in the House and Senate did not, however, pencil those dollars into the supplemental spending plans they released Monday.

Republican lawmakers are suggesting the money be earmarked for one-time investments to replace fish-passage barriers or to pay down the state’s pension commitment.

The House Finance Committee is scheduled to vote on House Bill 2945 on Thursday.

Meanwhile, the companion Senate bill is slated for a hearing at 3:30 p.m. Wednesday in the Senate Ways and Means Committee.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com. Twitter: @dospueblos

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