Inslee veto underscores need for tax reform

Gov. Jay Inslee vetoed a tax break for manufacturers last week, and some state Republican lawmakers quickly cried foul, believing the Democrat broke an agreement.

It may be truer that Inslee showed disregard for the hard work that went into the dark-of-the-night agreement between Democratic and Republican lawmakers.

But the manufacturing tax cut was a significant tax code change and lacks accountability. If Inslee broke trust, legislators also broke trust with the public by negotiating their tax-break package in secret and approving with virtually no public review. The governor is given veto power precisely to stop legislation that has flaws.

Still it’s easy to understand why some Republican members like Sen. John Braun, the Senate Ways and Means Committee chairman from Centralia, are upset. Budget talks can be grueling affairs. Closing a deal requires parties to accept things they really hate in order to get things they do like.

In this case, some Republican lawmakers joined Democrats in requiring more retailers to collect sales on online transactions. They also agreed to repeal a sales tax exemption on bottled water and to repeal a tax break benefiting oil refineries. And some Democratic lawmakers voted to accept the cut in tax rates for manufacturers and other interests.

That give-and-take made some political sense to legislators who were desperately negotiating a state budget deal with only hours left before the government would shut down on July 1.

But the lack of accountability also flies in the face of a recent — and sound — trend of putting time limits and other conditions on preferred tax rates and tax exemptions.

Senate Bill 5977 would have granted all manufacturers a roughly 40 percent tax cut, putting them at the same business-occupations tax rate that the state bestowed on Boeing and other aerospace firms in both 2003 and 2013.

The more recent Boeing tax break had specific goals, a time limit and an expectation for job creation. It was part of a strategy to keep Washington positioned as a top-tier, global aerospace hub with a well-trained workforce. Failing to secure assembly work for the new 777-X passenger jet in Everett would have undercut our region’s place.

As part of the record-setting $8.7 billion tax break over several decades, Boeing agreed to put build its 777X passenger line in Everett and to maintain its related workforce (unless a slump in demand dictated otherwise).

SB 5977 had tax breaks for several other industries, too. It extended a business-tax break for filmmakers for another 10 years. It similarly extended a preferential tax rate for solar silicon manufacturers and semiconductor materials manufacturers; it created a new tax exemption for certain agricultural fertilizer and seed sales; and it exempted martial arts from retail sales taxes.

The tax package further created a business-tax credit for silicon smelters, which required repayment of exempted taxes if employment levels fell below a certain level or average wages fell. It had yet another tax incentive sought by Braun — which Inslee also vetoed — to help TransAlta with its planned conversion of a coal-fired electricity-generating plant near Centralia to one using natural gas or biomass.

That is not to say tax breaks for manufacturers are bad. They benefit the greater good if they are part of a responsible strategy, or social contract, that produces more jobs or helps build a stronger industrial base, say in clean energy.

Sen. Braun has been quoted as saying the governor's veto “makes future negotiations virtually impossible’’ at the Capitol.

That is an exaggeration. For one, some of these tax breaks would never have been smuggled into a budget agreement if the secretive budget talks were not already "virtually impossible."

A more legitimate outrage is our state’s need for tax reform. We need changes so that our upside-down tax scheme is less punitive for low- and moderate-income taxpayers and also for small businesses.

As lawmakers look ahead to their next session, they should remember this larger picture. Our state’s welfare and future rest in some measure on how well our children are educated and how our most vulnerable are looked after.

The responsibility for those costs should be shared by all taxpayers, but the load needs to be distributed more widely and equitably than it is.

If we are going to cut taxes for every business that threatens to leave — or might threaten to — then we need to find a way to shift some tax burdens off businesses. A thoughtful approach would shift some of that burden onto the backs of those who receive windfalls in our winner-take-all economy.

This story was originally published July 15, 2017 at 8:19 PM with the headline "Inslee veto underscores need for tax reform."