Building a responsible and sustainable budget requires lawmakers to take steps toward fixing Washington’s upside-down tax code, which taxes middle- and lower-income households at significantly higher rates than those at the very top of the income scale. Yet the proposal from Republican leaders in the state Senate offers no meaningful reforms to the state’s flawed tax code.
Far from raising the substantial new revenue needed to fully fund education and protect the programs that help Washingtonians who are struggling to make ends meet, their “levy swap” proposal would actually reduce overall property tax resources for schools in our state. It would also be deeply inequitable, raising taxes on millions of lower- and middle-income homeowners and renters in the Puget Sound region.
What’s more, Senate Republicans actually propose creating or extending nine tax breaks, totaling $13.5 million in giveaways in the 2017-2019 budget cycle.
Rather than working to flip our tax code right-side up and improve our quality of life, Senate Republican leaders propose a state budget that nominally balances, but only with the help of unsustainable gimmicks, such as:
- Forcing future lawmakers to make deep cuts to non-K-12 investments – such as health care, child care, job training, safe communities, and other important investments – by dedicating all future revenue growth to maintaining K-12 spending and property tax cuts.
- Draining $700 million in reserve savings from our state’s rainy day fund, the budget stabilization account, which is an essential backstop that prevents severe disruptions in funding for our most important services during recessions and other state emergencies. And Senate Republican leaders offer no plan to replenish it.
- Sweeping $63 million from Temporary Assistance for Needy Families (TANF) to pay for other unrelated budget items. TANF is an essential resource for families trying to get back on their feet. This proposal would take much-needed resources out of programs that help the people who have the hardest time making ends meet and dole those resources out for other investments.
As shown in the chart below, the budget proposal from Senate Republicans would boost state funding for education, but at the expense of essential investments in Washingtonians’ economic security and in community development and trust. Within those categories are programs that are essential to many Washingtonians – programs like TANF, Housing and Essential Needs, state retirement contributions for first responders, and the programs we all count on to protect our legal rights. Thousands of Washingtonians’ lives would be severely and negatively affected by these cuts – and in many cases, they are the people who are already struggling just to get by every day.
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The proposed changes to funding, according to the major value areas laid out in the Budget & Policy Center’s Progress Index framework, are detailed in the sections that follow.
The McCleary Supreme Court case’s school funding mandate has been the most prominent issue in the legislative session so far – and for good reason. Excellent schools are one of the foundations of a thriving economy, and the legislature is facing a deadline for fully funding those schools. While the Senate’s proposed budget increases K-12 education funding by $1.8 billion, or by 7 percent, it makes huge cuts to early learning – slashing $36 million from child care programs. This is because the Senate doesn’t actually raise the necessary new revenue to fund K-12 education, despite the speaking points that make it sound otherwise. The proposals include:
- Undermining the foundations for high-quality early learning, especially for low-income children and families. The Senate plan would limit access to Washington’s Early Childhood Education and Assistance Program – our state’s preschool program that serves families living in poverty – by eliminating 3 year olds from the program and not adding any new slots over the next two years despite 23,000 unserved eligible children in the state. It also guts Early Achievers, our state’s key resource for early learning professionals to access coaching and tools to provide high-quality early care.
- Repealing voter-approved education initiatives. The budget would repeal initiatives 1351 and 732, measures passed by Washington voters to reduce class sizes and fund teacher cost-of-living raises. Refusing to implement voter-approved teacher cost-of-living raises is out of step with the goal of fully funding K-12 education.
- Overhauling the current school funding formula to change the way state disburses money to schools throughout the state. Even though the plan would require sizeable and commendable new investments in K-12 schools, the Senate has proposed to pay for its plan with a levy swap proposal that would actually reduce property tax resources for schools compared to the current system.
- Prioritizing STEM and medical education over the needs of struggling working families. The Senate’s budget provides some increases in the higher education budget. But these investments would come at the expense of the lowest-income working families: $47 million is ransacked from WorkFirst – Washington’s job training and assistance program for families with young children who are trying to get back on their feet – to pay for them. Lawmakers should not be pitting working the needs of families against those of people seeking higher education opportunities.
A community with a thriving economy fosters great jobs and supports working families, ensures stable and healthy housing for everyone, and provides economic opportunity for Washingtonians to meet their basic needs. The Senate Republicans’ proposal eviscerates the parts of our budget that make these values a reality for residents, particularly targeting those programs that relieve hardship among the lowest-income working people. This budget would cut funding for economic security by $132 million, a staggering 13 percent decrease from the amount necessary to maintain current services. Proposed changes include:
- Cutting assistance for people with disabilities at risk of homelessness. This proposal would do away with the Housing and Essential Needs program that provides housing-related assistance to people unable to work because of disabilities. It replaces it with a new program that would only be available to people with dependent children, essentially eliminating services for seniors and single adults and all but guaranteeing an increase in homelessness. It also cuts another crucial program for people with disabilities – the Aged, Blind, and Disabled program – by limiting the time people can be on it to 36 months.
- Ransacking resources from job training programs to plug holes in other parts of the budget. The proposal moves $63 million out of the WorkFirst program and uses the money for other unrelated purposes, such as replacing funding cuts to colleges and universities.
- Pushing people off basic assistance and making it harder for new people to get on. TANF provides basic supports to families with children who are financially struggling. The Senate Republican budget would cut people off the program who have a disability, or people who are needed at home to care for a family member with a disability. It would also require new applicants to prove that they have been unable to find a job before applying for benefits, but it fails to provide necessary help to applicants in their efforts, such as providing for child care while parents are job-hunting. When other states have implemented similar procedural hurdles for families, they saw increases in hardship and spikes in homelessness.
- Limiting options for working families to access child care so parents can go to work. The plan makes Working Connections Child Care, Washington’s largest child care subsidy program for families with low incomes, more difficult to access by changing eligibility requirements, capping enrollment, and creating more red tape for participants.
Washingtonians enjoy clean air and water and an excellent health care system that supports the wellbeing of a vast majority of Washington’s residents. The state budget provides for those benefits by investing in public health clinics, climate protection measures, and mental health services. The proposal would increase funding in this area by only $75 million, a less-than-1-percent boost. The proposals include:
- Failing to provide adequate investments in mental health services. Compared to the budget proposed by Governor Inslee, this budget falls short on the immediate investments to address safety and staffing issues at Western State Hospital – in fact, this proposal would close down two entire wards – and fails to make the investments needed to build a strong community system into the future.
- Missing opportunities to invest in public health, and to safeguard against proposed federal cuts. As the federal government considers cutting back federal support for health care, it is alarming to see leaders in our state Senate propose underinvestment in our public health system and health benefits for state workers. The budget also threatens the health insurance coverage for tens of thousands of home care workers who support our vulnerable seniors and people with disabilities.
- Threatening health care innovation reforms that are part of the Washington State Medicaid Transformation Project. This initiative is designed to help Washingtonians achieve better health outcomes, to reward high-quality care, and to curb health care costs in the state Medicaid program. The Senate’s budget would create a roadblock to continuing this initiative and to receiving the $1.5 billion in federal funds it was slated to receive.
- Reducing investments in programs that are protecting our state’s air and water. The proposal fails to provide resources to adequately sustain work to clean Puget Sound, a clean-up project that is also facing a federal funding threat from the Trump administration’s proposed budget. And no state funding is provided to implement the Clean Air Rule, an effort by Inslee’s administration to reduce carbon pollution in our state. The proposal would also cut or fail to fund investments in restoring salmon and protecting habitat.
COMMUNITY DEVELOPMENT & TRUST
Good quality of life for Washingtonians includes safe communities to live in, access to beautiful parks and historical spaces, an open government that runs smoothly and efficiently, and the assurance of transparent and fair elections. This budget would undermine community development and trust by cutting current programs by $107 million, a 1.8 percent decrease from maintenance levels. The major changes include:
- Failing to invest in tens of thousands of front-line workers, like nurses, home care workers, child care workers, highway maintenance workers, and other public employees by rejecting collective bargaining agreements already negotiated (with the exception of corrections workers and Washington State Patrol troopers and lieutenants). It also exacerbates ongoing issues with recruitment and retention throughout state government by mandating indiscriminate layoffs at state agencies. This would make it nearly impossible for our state agencies to deliver high-quality, timely services to the public.
- Reducing resources for those who serve to uphold the law for all Washingtonians. Under this budget, state agencies that work to protect the legal rights of everyday citizens would see huge cuts. The Office of Civil Legal Aid would be cut by $10 million (36 percent) and the Office of the Attorney General, which represents our state in legal matters that benefit us all, such as lawsuits against the federal government, would be cut by $20 million (78 percent). The cuts to the Office of the Attorney General in ongoing funding would be temporarily replaced by shifting one-time resources from a lawsuit.
- Reducing state contributions to retirement systems for first responders. Contributions to retirement systems are reduced by $159 million (a 74 percent reduction from maintenance levels), largely because of a $109 million cut to retirement contributions for police and firefighters.
The state Senate Republican leaders take a page out of the book of Republicans in the other Washington – making deep cuts to the very investments that people throughout our state rely on, and across every area that we use to measure progress. It would be particularly stark for the people who are struggling to make ends meet. And it also includes a host of irresponsible and unsustainable financial stunts that add up to a budget that would collapse under its own weight.
A solid budget framework is the foundation for a strong economic future for Washington and its people. The Senate Republicans should rework their budget with an eye toward strengthening our state’s communities and the foundations that support them.
Wasteful tax breaks are depriving our communities of billions of dollars that are instead being funneled to large corporations and special interests that have manipulated the tax code in their favor. Those special interests are receiving money that our state could be collecting and investing in public priorities that benefit us all, like schools, utilities, and emergency services.
To support the well-being of our state and its people, lawmakers must take long-overdue steps toward cleaning up our tax code so that it serves all Washingtonians and secures revenue to fund important state programs. They can do that by getting rid of budget-busting tax breaks.
The Budget & Policy Center’s revenue reform plan, Accountable Washington, proposes closing or narrowing 21 of the most wasteful and outdated tax breaks in the code, which would inject $1.1 billion into our communities in the 2017-2019 biennium. They are detailed below.
Narrow the tax break for big oil extractors. Fuel used by manufacturers or extractors in the process of manufacturing or extracting at the same plant is exempt from the use tax. This tax break was originally enacted to benefit the timber industry, but today, it primarily benefits the oil industry. Curtailing this exemption would end the tax break for all fuel extractors, except on fuel from wood byproducts, also known as “hog fuel.”
Repeal the sales tax break for nonresident shoppers. Residents of states where there is no or low sales tax – primarily Oregon, Alaska, Montana, and certain Canadian provinces – may make purchases in Washington without paying the sales tax. This exemption was originally enacted to make Washington’s border businesses competitive with neighboring states. However, the majority of exempt purchases from qualifying nonresidents occur in King County, which isn’t a border county. That suggests this break is wasted on tourists who would shop in Washington with or without it.
Apply the sales tax to consumer services. Washington’s sales tax mostly applies to tangible retail goods, such as cars and appliances. It also applies to many “nondurable” goods such as toothpaste and other hygiene products. That worked pretty well back in the 1930s when consumers spent most of their incomes on these kinds of products. But, as the chart below shows, consumers today spend the majority of their income on services not covered by the sales tax. It makes sense to modernize our tax code to reflect this economic reality. Applying the sales tax to consumer services, such as spa treatments, financial advice, and cable and satellite TV packages would accomplish that.
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Close the sales tax break on bottled water. Our state’s sales tax applied to bottled water until 2008, when Washington joined a multi-state effort to conform to a single set of sales tax standards, which excluded bottled water. Since then, this exemption has left millions of dollars on the table each year. Not to mention the negative effects on the environment: Not only does packaging and transporting bottled water contribute to global warming, but empty plastic bottles are also notorious for filling landfills and clogging waterways. Policymakers can reapply the sales tax to most purchases of bottled water while ensuring it remains untaxed for people who don’t have access to potable water.
Close the sales tax break on candy and gum. Washington state has a broad-based sales tax. While there are valid sales tax exemptions for some consumer goods, including many grocery items, there is no compelling economic reason why candy, gum, and baked confections should have a tax exemption. Applying the sales tax to these items would generate significant new resources and make the sales tax more broad and sustainable in the long run.
Eliminate a business tax break for large online retailers. Retailers that have employees and properties located in Washington state pay business & occupation (B&O) taxes on the goods they sell to Washingtonians. However, large online retailers with no employees or offices located in Washington don’t pay any B&O taxes – even though they sell millions of dollars in goods to customers located here. This loophole can be closed by adopting an “economic nexus” approach for the B&O tax. Under this rule, any business that makes at least one quarter of its total sales to customers in Washington state, or that has at least $267,000 in sales here, would be required to pay B&O taxes on their in-state activities.
Narrow the tax break for trade-in vehicles valued over $10,000. Under current law, the full value of a vehicle trade-in to a dealership is exempted from the state sales tax. We propose limiting this exemption to the first $10,000 of trade-in value. The Citizen Commission for Performance of Tax Preferences notes that this tax break doesn’t stimulate enough additional sales to replace the lost sales tax revenue. Further, the average vehicle traded in at a dealership is valued at $7,500, which means many trade-ins would remain exempt under the proposed $10,000 threshold.
Eliminate the preferential tax rate for prescription drug resellers. Businesses that warehouse and resell prescription drugs pay a B&O rate that is less than a third of the standard rate for wholesaling. Even though this preference was passed to lure prescription drug wholesalers to relocate to our state, the preference is now available to all drug resellers who do business here, including those operating out-of-state warehouses. This preference no longer serves any purpose except to provide giveaways to prescription drug companies.
Close the public utility tax break for interstate trucking and rail hauls. Transportation businesses that begin or end their trip outside of Washington state are not taxed on any of their income generated from activities here. Repealing this exemption would subject such businesses to the public utility tax for income received while in the state.
Eliminate B&O tax breaks that no longer serve us, including for industries such as international investment management services and banking facilities, travel arrangement services like those provided online, and soda sellers. These industries get a break on their B&O taxes even though there’s little evidence that they benefit state or local economies.
The full list of tax breaks we propose to narrow or close can be found in the table below.
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When our state gives away money to big oil, international investment banking companies, and prescription drug resellers, it can’t use those dollars to invest in the things that benefit us all. It’s time for lawmakers to clean up these wasteful and outdated tax breaks and invest those resources into the things that provide the foundations for thriving communities – from schools to public health programs, and from parks to walkable sidewalks.
But during the current legislative session, lawmakers are still struggling to find common ground on how to invest in schools and other key priorities. It’s essential that legislators take a bold, equitable path to fund our state’s most important investments and to bring greater balance to our tax code. The Budget & Policy Center has developed a plan that would do just that. This plan, called Accountable Washington, includes a package of reforms that would infuse $2 billion annually into our communities in the coming years, while significantly reducing taxes for Washington households with middle and low incomes. Additional details of the plan are available in this fact sheet.
As the chart below shows, taxes would decline by an average of 5.1 percent among the households with annual incomes that fall in the bottom fifth of Washingtonians. Households in the middle of the income scale would see their taxes decrease by 0.6 percent. By contrast, the richest 1 percent would see their taxes rise by 2.1 percent of annual income – a small price to pay for heightened investments in our communities.
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Given the urgent need to fund state Supreme Court-mandated improvements to schools across the state, all of Washington’s children would be an important beneficiary of Accountable Washington. Further, this plan would ensure that lawmakers can fully funds schools while also keeping up investments in other programs that serve Washingtonians – such as responsive emergency services, clean water, food for kids who are hungry, and job supports for working parents.
While looking to enact solutions to ensure we have adequate state investments, lawmakers should also be mindful not to raise new revenue on the backs of low- and middle-income households. These households already pay up to seven times more in state and local taxes as a share of their incomes than people at the top of the income scale.
Accountable Washington would begin to clean up and rebalance our inequitable tax code in a way that raises billions of dollars in much-needed new resources. Here’s what it would do:
- Enact smart, equitable reforms to the property tax, including eliminating an indiscriminate restriction on property tax revenue and offering in its place a new, targeted property tax rebate, which we call the safeguard rebate, for families earning $75,000 or less. Property taxes are the most significant source of funding for schools, and both state and local property taxes are at the center of the school funding debate. Under Accountable Washington, lawmakers can make the property tax code more sustainable and more equitable by raising the state property tax rate by $1.54 per $1,000 of assessed value and enacting a safeguard rebate to offset these increases for households with low and middle incomes.
- Rebalance the tax code by enacting an excise tax on capital gains at a rate of 9.9 percent on profits from the sale of stocks, bonds, and other financial assets of more than $25,000 (or $50,000 for couples). Washington is giving away a $2.8 billion capital gains tax break to the wealthiest Washingtonians. While 41 other states have this common-sense tax, Washington gives the wealthy a break on huge profits they receive simply from moving their wealth around. Almost 90 percent of this capital gains tax would be collected from the richest 1 percent of Washingtonians. Gains from the sale of a primary home, retirement accounts, college savings plans, and other common investments would be excluded from the tax.
- Lift up working families by funding the Working Families Tax Rebate (WFTR). Based on the federal Earned Income Tax Credit (EITC), this rebate is a smart fiscal policy to help struggling families make ends meet. The EITC is one of the most powerful federal anti-poverty tools on the books. Including the WFTR in the Accountable Washington proposal keeps taxes from taking too big a bite out of family budgets for the lowest-income Washingtonians.
- Clean out 21 wasteful tax breaks that divert money out of classrooms and into the hands of special interests. To be clear, not all of Washington’s 700 tax breaks are bad policy, but many are outdated and no longer serve their original purpose. And others are simply giveaways to the powerful interests that finagled them into the tax code in the first place. Everybody benefits from excellent schools, clean air and water, safe roads, and accessible health care, so everybody should pitch in and pay their share.
Our lawmakers have an historic opportunity to make some long-awaited repairs to our broken tax code, not only to provide a world-class education for Washington’s 1.6 million kids, but also to serve their parents, their teachers, their neighbors, and their entire communities. We believe they can do that through Accountable Washington.
Check out this fact sheet on the proposal for more details.
Those who believe that the $57 million in new tax resources included in the Washington State Senate's latest budget proposal represents a significant compromise in the ongoing budget negotiations are in for a big disappointment.
The new resources are no compromise from the Senate leaders’ rigid position of being against any new taxes to support schools and other priorities. Rather, they are a one-time payoff from large TV, cable, and media companies in exchange for a permanent tax cut that in the years ahead will cost the state millions of dollars that could have been used to help build a stronger economy.
Worse, this sweetheart tax deal sets a troubling precedent: It rewards businesses that don’t fulfill their civic duties and that evade paying the taxes that are needed to support safe communities, public infrastructure, and other investments that benefit all Washingtonians.
For at least the past six years, many large national media companies that supply TV shows, movies, and other content to local broadcast stations have been dodging Business & Occupation (B&O) taxes on their advertising and royalty-income-generating activities in Washington state.
Before 2010, these and certain other businesses were able to avoid paying taxes on their activities in Washington state if they had no employees, agents soliciting sales, or property located here. In 2010, lawmakers wisely plugged that tax loophole, requiring these businesses to pay taxes on the portion of their incomes generated in our state.
But many large TV and cable companies failed to comply, avoiding about $11 million per year in B&O taxes tied to their Washington-based advertising activities, according to estimates from the state Department of Revenue. And now there is a threat of legal action from national media conglomerates doing business in Washington state that would seek to prevent the Department from collecting their unpaid taxes and enforcing the law in the future.
Senate Bill 6665 – heard in the Senate Ways & Means Committee on March 11 along with the Senate’s latest budget proposal – would reward these businesses for shirking their responsibilities to Washington state. Companies in the mix would likely include multibillion-dollar corporations like Comcast-NBCUniversal and Fox Broadcasting Company.
Under the proposal, all fines and penalties assessed on unpaid taxes from June 2010 to July 2016 would be waived for any business that pays by October 2016. And the actual amount the companies owe in unpaid taxes from that time period would be cut in half.(1) Their tax responsibility moving forward would also be cut in half.
The upshot is that under SB 6665 there would be a one-time, $57 million boost in B&O tax revenues in our state from national media corporations as they rush to take advantage of a massive giveaway of public money that they’d be crazy to turn down. The deal allows them to pay a mere fraction of their total unpaid tax bills now and receive a large permanent reduction later.
Far from being a needed breakthrough that would enable policymakers to make real progress on addressing the many challenges communities face across our state, the latest Senate budget is really just more of the same: unsustainable gimmicks and wasteful tax breaks for large, profitable corporations that don’t need them.
(1) Under current law, these companies are required to pay B&O taxes on about 2.2 percent of their total nationwide advertising income, which amounts to an estimated $730 million per year, according to the Department of Revenue. But SB 6665 would permanently cap their Washington portion at 1.1 percent, or $360 million per year. Their cumulative tax bills on advertising revenue would be reduced from about $11 million per year to $5.6 million.
*The original version of this post incorrectly stated that any taxes national media companies owed to Washington state from before January 2012 would be entirely forgiven under SB 6665.
State lawmakers should move quickly to approve several new bills introduced this week by members of the House of Representatives to cut back on wasteful corporate tax breaks and to hold Boeing, a major beneficiary of state tax subsidies, accountable for shipping jobs out of state.
As the state legislature struggles to fulfill its state Supreme Court mandate to fund public schools and faces lower-than-expected projections for tax revenues, this effort to scrutinize and weed out costly tax breaks is a fiscally sound move. These proposals would secure at least some new revenue for our schools and our state economy.
When lobbyists secured the largest state corporate tax subsidy in U.S. history for the Boeing Company in 2013, they assured lawmakers and the public that renewing and expanding aerospace tax breaks would allow the company to create many new jobs in Washington state. Since then, however, the company has terminated, or relocated to other states, thousands of Washington-based jobs. Yet Boeing continues to claim millions of dollars in annual state tax subsidies.
To hold Boeing accountable for its use of Washington state tax break dollars, House Bill 2994 would require the company to contribute $2,500 to public K-12 schools for every job terminated or shipped out of state since November 2013. These tax breaks were intended by the legislature to maintain and grow aerospace jobs in Washington state. By actually tying the company’s eligibility for the tax breaks to in-state job creation and investments in the education of future workers, the bill would help ensure Boeing upholds its end of the deal going forward.
The proposals would also repeal or scale back four wasteful tax breaks – including a sales tax exemption claimed by oil refineries (HB 2990); a business tax deduction on income from home mortgages (HB 2991) that is claimed by large multinational banks despite being intended to help small community banks; a business tax exemption claimed by international banks (HB 2993); and a sales tax exemption on large private jets purchased by corporations (HB 2992). Removing these tax breaks would generate an estimated $60 million per year in new tax resources for schools in Washington state.
Washington’s schools should not continue to have outdated textbooks and overcrowded classrooms while multi-million and -billion dollar corporations are claiming tax breaks that don’t benefit the community as intended. These common-sense reforms are a step in the right direction.
New evidence finds that supporting "home-grown" startups and young, fast-growing in-state companies is likely to be a more effective strategy for states to create jobs and build a strong economy than attempts to lure businesses from elsewhere.
In "State Job Creation Strategies Often Off Base," a new report from the Center on Budget and Policy Priorities, Senior Fellow Michael Mazerov and Director of State Fiscal Research Michael Leachman conduct new research showing that the vast majority of jobs are created by businesses that start up or are already present in a state. They conclude that "many state policymakers pursue economic development strategies that are bound to fail because they ignore these fundamental realities about job creation." When states pursue tax breaks, they divert resources needed to help home-grown startups and young, fast-growing companies deliver maximum job growth and to build a climate that supports their growth.
In the past, a lack of useful data severely limited research about which kinds of firms create jobs. Now, though, the federal government has developed databases that track over time the job-creation record of specific businesses of various sizes and ages while accounting for ownership changes. The U.S. Census Bureau has developed two such "longitudinal" databases. The U.S. Labor Department has developed one as well, and a private company using the Dun & Bradstreet business registry has created yet another.
Research using the improved data has revolutionized our understanding of which businesses create jobs, and where they create them – calling into serious question the value of the various tax breaks states offer businesses to move. Among the facts that counter tax-cut strategies:
- About 87 percent of 1995-2013 private-sector job creation in the median state was home grown. It came from startups, the expansion of employment at existing establishments, and the creation of new in-state locations by businesses already headquartered in the state.
- Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year.
- To promote and assist job-generating entrepreneurship, state policymakers would be wise to invest in schools and colleges, improving workers’ skills, and maintaining communities that are attractive to residents who want to start a business. Successful entrepreneurs report these factors were key to where they founded their companies.
- The most commonly cited reason among entrepreneurs for starting their companies where they did was that it was where they lived at the time; 80 percent of them had lived for at least two years in the city where they started their companies.
Despite continuing to rake in big profits, the Boeing Company has eliminated more than 3,000 jobs in Washington state since November 2013 – when lawmakers granted the company the largest state tax subsidy in U.S. history. The tax breaks were supposed to encourage Boeing to “maintain and grow” its workforce in Washington state. Instead, thousands of workers have received pink slips or been told that they can either relocate out of the state or country or lose their jobs.
So how did this happen? It’s because Washington’s tax breaks aren’t structured in a way that encourage Boeing to create more jobs here. Other than a stipulation that some of the manufacturing facilities for its upcoming 777X jetliner must be built in Washington state, the company is essentially free to do as it pleases. Unlike other states where Boeing operates – including South Carolina, Illinois, and Missouri – our state doesn’t require the company to create or retain a single job in order to claim state tax breaks.
House Bill 2147 would change that by refocusing Boeing’s tax breaks on job creation. Although the bill may now be moving into "missed opportunity" territory as the regular session comes to a close, it's still important to shine a light on why Washington state needs such a bill. The bill would help protect Washingtonians who work for Boeing by requiring the company to actually do its part to maintain and grow its workforce in Washington state or risk losing its tax subsidies. It ties the tax breaks directly to the number of jobs located in Washington state.
Essentially under the bill, Boeing’s tax breaks would be gradually reduced if its Washington-based workforce falls below November 2013 levels. For every 250 jobs below that baseline, its preferential business and occupation (B&O) tax rate would increase by about 2.5 percent. The preferential rate would disappear completely if Boeing employment falls 5,000 below the November 2013 baseline. The company’s tax credits would similarly be reduced as employment falls.
If the 2015 legislative sessions end without the passage of the bill, Boeing will continue to claim more than $300 million per year in preferential business tax rates, business tax credits, and sales tax breaks until 2040. That’s no matter how many (or how few) workers it employs in Washington state.
A 2014 Legislative Auditor economic analysis vividly spelled out the dangers of failing to act on this important measure. It found that in order for state aerospace tax breaks to have a net positive impact for the state economy, Boeing would need to make continuous investments in Washington state. A onetime investment in a new facility doesn’t cut it. That’s because the tax breaks for Boeing filter state money away from other investments that help build a strong state economy. They reduce the resources available for things like public schools and colleges, infrastructure, and public safety.
In other words, the tax incentive’s current structure doesn’t only mean that the company can keep reducing the size of its workforce in Washington; it also means taxpayers are subsidizing a multibillion-dollar corporation at the expense of the well-being of our communities.
We all want a thriving aerospace sector and the growth of good, living-wage jobs in our state. House Bill 2147 would help ensure that outcome by encouraging Boeing to make a firmer commitment to Washington. Although the 2015 regular legislative session is ending, policymakers could still revive this bill during the special session. It's an important piece of legislation that would be worthy of such a bold move by our elected officials.
Click here to see the testimonies from hardworking Boeing workers who support this bill.