It has become the battle cry of liberal groups trying to stave off devastating budget cuts: Cut tax breaks.
But Olympia loves handing out tax exemptions, and this legislative session is shaping up as no exception. Two weeks in, Democrats in the Legislature haven’t yet unveiled any plan to reduce tax breaks, but they have offered several ideas for creating new ones.
Even some of the lawmakers who talk about reducing the state’s more than 560 tax exemptions are also pushing to give exemptions to recreational sports leagues, small lenders, nonprofits, zoos and aquariums, and minor league baseball teams.
It’s a sign of just how difficult the task is ahead for advocates of cutting back on special tax treatment.
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“People think about tax exemptions one at a time in the Legislature, and any given one may have a valuable purpose,” said Washington State Labor Council President Jeff Johnson. “We’ve got to break through that mind-set and say ‘Look, as a matter of policy, can we afford to do this right now?’”
Voter-approved Initiative 1053 treats the repeal of tax exemptions the same as a tax increase. So that means supporters of an exemption roll-back would have to either bring two-thirds of lawmakers over to their side – virtually impossible given Republican antipathy to taxes – or persuade majority Democrats stung by November’s election results to put taxes on the ballot.
The Labor Council wants lawmakers to let voters decide whether to suspend a series of tax exemptions worth $3 billion or more to help close the $4.6 billion budget shortfall. Johnson suggests targeting, for example, services, such as investment advice and architectural work that consumers do not pay sales tax on.
Last year, before the I-1053 restrictions, exemptions briefly on the table for closure would have affected taxes on sales of fertilizer, software, gold bullion, and coal headed for the TransAlta power plant in Centralia, and on banks’ interest from home loans. But most exemptions survived, even as lawmakers raised nearly $800 million in taxes.
This year’s first strong push to examine tax preferences is likely to come from Rep. Reuven Carlyle, D-Seattle, who said he expects to introduce a bill this week.
While Carlyle wants tax breaks forced to justify their existence, he isn’t against them all. One of the first bills he offered this year would exempt zoos and aquariums from paying sales and business and occupation taxes.
Museums, parks and other cultural institutions already get those breaks, Carlyle said. He just wants the same treatment for Seattle’s Woodland Park Zoo, Seattle Aquarium and Tacoma’s Point Defiance Zoo & Aquarium.
“In this era of trying to close tax loopholes, there’s no defensiveness about this whatsoever,” Carlyle said.
He offered the bill with Sen. Jeanne Kohl-Welles, D-Seattle, another proponent of cutting down on tax breaks.
“One of the reasons I’m sponsoring it while I’m working to have a courageously honest conversation about tax exemptions in this state,” Carlyle said, is that it “is in no way inconsistent with the idea that some tax exemptions make 100 percent perfect sense.”
No cost estimate is yet available, but a similar proposal he made last year would have cost the state $86,000 in revenue in its first year.
Sen. Adam Kline, another critic of the tax code for its many exemptions, wants to help out a nonprofit developer in his district with an exemption for its work to make credit available.
“This is not a session in which to give tax breaks. As I say that, I’ve got a bill that does one,” said Kline, D-Seattle. “But for 5,000 bucks to a nonprofit, I somehow don’t feel this is any more than just budget dust.”
He signed on to a bill introduced by Sen. Steve Hobbs, D-Lake Stevens, that would exempt a handful of credit unions and other lenders – those certified by the federal government as community development financial institutions – from paying B&O tax on loans to first-time homebuyers.
The Seattle developer would pay $5,000 a year less in taxes, he said, a pittance compared with the break banks get.
Even capping the bank deduction would save the state $50 million or more a year. Opponents argue that banks would pass the cost along to homebuyers.
Rep. Larry Seaquist, D-Gig Harbor, and Sen. Debbie Regala, D-Tacoma, both favor a re-examination of tax breaks. Regala is preparing a bill targeting one specific break; Seaquist wants to put exemptions on the ballot every two years to pay for school improvements.
Both also want a new exemption for organizations such as Goodwill and Pioneer Human Services that help prepare workers to find a job. The groups’ work is worthy, Regala said.
“We take people who generally have never been employed or have not been successful in employment, and we train them and give them skills to go out and find a job,” Goodwill lobbyist Phil Watkins said.
The lawmakers would relieve the nonprofits of the property taxes they pay on buildings they lease. Goodwill would pay roughly $1.2 million less in state and local property taxes, Watkins said.
He also said governments would shift those costs to other property taxpayers rather than lose money.
FOR BASEBALL TEAMS
Another proposal would cut the tax bills of baseball team owners.
The City of Tacoma and current Rainiers owners SDL Baseball Partners negotiated a new lease that takes effect this spring when the bats start swinging again in newly renovated, city-owned Cheney Stadium.
Under the lease, the current owners or anyone who buys the team will pay $500,000 in annual rent. They also will pay about $65,000 a year in leasehold taxes to the state and city. But the city promised in the lease agreement that it would try to change state law to eliminate the taxes.
“We’ve got a big investment in Cheney Stadium, and we’ve got a team we need to keep,” Rep. Steve Kirby, D-Tacoma, said.
At the city’s behest, Kirby introduced House Bill 1269 to exempt minor league baseball stadiums from the leasehold tax. Owners of the Everett AquaSox, Spokane Indians, Yakima Bears and Tri-City Dust Devils would benefit, too, said Randy Lewis, who as Tacoma’s legislative director is lobbying for the break.
The minor league parks would be treated like big-league Safeco Field and Qwest Field in Seattle, which lawmakers have already exempted from the tax.
“What we’re doing is simply leveling the playing field,” said Mike Combs, the city’s public assembly facilities director.
Lewis said the Legislature is bound to open some new tax exemptions this year, but the stadium bill would be a hard sell.
“There’s a lot of angst about tax exemptions of any kind,” he said.
That’s because to fill the budget gap the state is eyeing wholesale program cuts including the demolition of a preschool for 3-year-olds, medical aid and cash for disabled workers, and subsidized health insurance for poor adults. It also is looking at closing parks and museums.
Still, the ballpark bill has an influential supporter: House budget vice chairwoman Jeannie Darneille of Tacoma, has signed on. Darneille also has said the Legislature needs to consider asking voters for more tax revenue to avoid budget cuts.
It’s not just professional athletics asking for help. Lawmakers might also step in to help the amateurs who play for fun at the neighborhood ballpark.
The Department of Revenue discovered that people who pay to join amateur sports leagues haven’t been taxed, said Rep. Kathy Haigh, D-Shelton. She said tax collectors advised parks, like one in Mason County with baseball fields, to start paying.
The park isn’t set up to collect taxes, Haigh said. She and Regala have introduced bills to head off the looming tax burden.
Unlike some Democrats who support individual tax breaks, Haigh isn’t an enemy of exemptions as a whole. Many of them benefit agriculture and other industries that are under economic strain, she said, which is why she doubts many loopholes will be closed this year.
“Any exemption that’s there,” she said, “has been hard-fought and put there for some reason.”