Ending unneeded tax breaks could help sew up budget

The OlympianMarch 28, 2013 

To understand the priorities of any organization, don’t look at the lofty goals of its strategic plan or the high-flying language of its mission statement. Look instead at how that organization, business or government entity spends its money.

With last week’s mostly positive revenue forecast in hand, state lawmakers from both parties and the governor’s office are about to reveal their respective priorities in 2013-2015 biennium budget proposals.

Partisan differences promise at least two widely different approaches to state finances.

Based on rhetoric so far, Republicans will present a budget centered primarily on spending cuts and without tax increases, while the Democrats and Gov. Jay Inslee will balance their budgets with new revenues.

That philosophical disparity casts doubt on whether the Democrat-controlled House and the Republican-controlled Senate can find a mutually agreeable middle ground before the regular session ends on April 28.

There is a glimmer of hope, however, and it depends on how lawmakers define a tax increase. More specifically, does ending a tax break constitute a tax increase?

If enough lawmakers decide it does not, then the competing budget proposals might emerge closer than otherwise expected, giving hope to dodging an expensive special session.

It’s estimated that closing outdated or nonproductive tax breaks could return as much as $300 million annually, freeing up funds for pressing needs, such as K-12 education.

It sounds promising, and legislators should pursue closing some tax loopholes. But which ones provide the least benefit to the state? And how should legislators evaluate them?

The Joint Legislative Audit and Review Committee (JLARC) examined 23 tax breaks this year and found that more than half were created with no clear legislative intent.

The Legislature has freely handed out more than 600 tax breaks over the years, and has rarely terminated any. Lawmakers proposed about 30 new tax breaks this year alone, though only two have passed the House and none survived the Senate.

Hundreds of millions of dollars in potential state revenue have been given away without any clear policy objective or measurable goals, and with no expiration dates attached.

The poster child is the 1949 tax break specifically for sawmills to avoid paying use taxes on fuel – wood scraps – they both produce and consume on-site. There were no oil refineries in Washington in 1949, but today those refineries claim 98 percent of an exemption not intended for them. This accidental tax break is depriving the state of about $63 million in revenues.

There seems to be legislative will to fix the problem going forward. House Finance Committee chairman Rep. Reuven Carlyle, D-Seattle, and Senate Majority Leader Rodney Tom, D-Medina, have both called for requiring future tax break proposals to have specific goals and defined termination dates. Tom authored a bill to that effect, which passed the Senate, and deserves support in the House.

It won’t be comfortable, but state lawmakers must dive into the murky waters of tax breaks to find those that no longer serve a purpose. If they do, the chances of reaching a budget compromise within the next 30 days greatly increase.

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