A litany of complaints tonight came from both sides of the tax-exemption mountain. The scene was a hearing in the House Ways and Means Committee on three bills that would close tax breaks for big banks, out-of-state shoppers or debt collectors – to help public schools, mental health programs, or in-home care for the elderly and disabled.
As usual, advocates for programs that would be funded spoke in favor. As usual, those that would pay the taxes – or retail interests that might see lost business if the retail sales tax was slapped on purchases by Oregon and Idaho shoppers – spoke out against the three bills.
The biggest of the three bills, House Bill 2078, targets bank interest earnings that are not taxed in Washington and sales taxes not paid by out-of-state shoppers. Freshmen Reps. Laurie Jinkins of Tacoma and Chris Reykdal of Tumwater and 46 others introduced it. They say it raises some $143 million for class size improvements in public schools' K-3 grades over the next two years.
"You like Wall Street banks? You like the kids?" Jinkins asked the committee in presenting her bill. "It's a very easy choice for me to choose the kids."
The two other bills would close tax exemptions in order to raise funds that help mental health and in-home care programs facing certain cuts this year as lawmakers close a $5.3 billion shortfall.
House Bill 2102 provides mental health funding by targeting the same sales-tax exemption for out-of-state shoppers. House Bill 2087 for home-care also targets out-of-state shoppers but includes debt collectors.
Several advocates seeking to end tax exemptions talked about the need to shore up school funding. Ilene Dickerson, a second-grade teacher at Olympia’s Roosevelt Elementary, supported closing the bank and sales-tax breaks "because as a teacher I know first-hand that smaller class sizes make a difference."
Dickerson painted a classroom scenario with three challenged students who needed extra attention and how their needs eclipsed the need of a more academically gifted girl for individualized attention.
Without the class size improvement money that lawmakers are otherwise cutting for lower grades, schools will see four more kids per classroom, on average, according to Randy Parr of the Washington Education Association. Parr said lawmakers are proposing to cut more than $1 billion from public schools including teacher pay raises, and Washington already ranks No. 48 among the states for class size.
WEA board member Shannon Rasmussen said "only California and Utah are worse."
But on the other side were the business and financial interests – everyone from banks to retailers and car dealers, and they had a story to tell, too.
Financial industry lobbyists said the proposed $100 million a cap on tax-exempt interest earnings would put at least two large in-state banks – Sterling and Washington Federal – at a competitive disadvantage with others (as the only state banks with enough revenues to be hit by the tax). And they argued it would drive up mortgage rates paid by home buyers, perhaps by 0.1 percentage point for some.
But Brent Beardall, a vice president with Washington Federal, said "it would more than double the interest rate for our mortgages.' That is because the Seattle-based company with offices in eight states keeps all of its loans and would pay taxes on interest generated from old loans– with no ability to raise the price to borrowers on those loans.
Beardall acknowledged that Washington is alone in not taxing interest, but he and others pointed out that Washington banks already pay the business and occupations tax on gross revenue, which is estimated at 1.8 percent and is unique to Washington.
"Washington is the only state that taxes revenue instead of income," Beardall said. "That is why we think that is so unfair Our business has a very thin profit margin."
Cindi Holmstrom, representing the Washington Financial League, said Sterling lost $350 million to $450 million last year and an added tax would be "detrimental" to the struggling lender. And Denny Eliason, lobbyist for the Washington Bankers Association, said that if big banks withdrew some loan offerings in the state it is unlikely small banks could replace them.
Eliason also said a bank "nexus" bill approved in 2010 put new taxes on in-state transactions whether by banks located inside or outside Washington. That amounts to a $184 million a year in new taxes on the industry in 2013 alone. Bankers did not fight that bill, which in effects doubles the tax burden of banks, Eliason said.
But the industry did not offer how to tinker with Jinkins' bill to avoid hitting instate banks, which one lawmaker asked them to do.
A lot of other testimony came from people worried about impacts on sales in border counties, and committee staffers said there was no study to show the impact. Amber Carter of the Association of Washington Business and others noted that the state now collects business-occupation taxes from businesses that sell to out-of-state buyers, even if sales taxes are not added, and the higher taxes could dissuade some out-of-state shoppers from buying here.
Scott Hazlegrove, representing the Washington State Auto Dealers Association, said car buyers who license their new vehicles in other states are exempt from paying the tax even under the bill. But the confusion created by closing the exemption could dampen car sales.
House Majority Leader Pat Sullivan, D-Covington, said any action on the revenue bills is likely to wait until a special session begins because lawmakers are expected to adjourn Friday.
But their future are in doubt anyway, because Democrats lack enough votes to close the exemptions without Republican support and the GOP isn't interested so far. And many lawmakers think that sending the issue to voters on Nov. 8 is doomed, given voters' mood. But the Service Employees International Union 775 Northwest has filed about eight initiatives, including some that address the out-of-state sales tax and tax exemption for debt collection services.