Tax Sanity Urges House Finance Committee to pass HB 1500

Testimony in support of HB 1500 – the Tax Exemption Transparency and Accountability Act

Washington State House Finance Committee, Jan. 31, 2017

Steve Zemke – Tax Sanity

 

Thank you for this opportunity to testify on this legislation.

This is the fourth year this bill has been before you and each year it picks up additional support. HB 1500 has 33 sponsors this year and its companion bill in the Senate SB 5513 has 13 sponsors. This is almost one third of our state Legislators.  Legislation to create a Tax Expenditure Budget has been supported by numerous groups in our state, including the Washington State Budget and Policy Center, the Washington State Labor Council, the Washington State Democratic Party, SEIU 775, Northwest Progressive Institute, Faith Action Network, Puget Sound Advocates for Retirement Action, and others

Why are they supporting this legislation? Because they believe that a system of tax expenditures that gives away more in revenue from the tax base than it collects is a broken system.  They believe that tax exemptions need transparency and accountability and fairness. That does not exist now.

Tax Exemptions, preferences, deductions, credits, and deferrals are off budget expenditures. They lack the transparency and accountably that exists for other expenditures the state makes as part of the biennial budget process. According to the Department of Revenue’s projection in their 2016 Tax Exemption Report for this 2015 to 2017 biennium they projected that while the state would collect some $7.4 billion in B&O taxes, they would exempt from the same tax base some $11.4 billion. This gap has widened since the last biennium.

Including the rest of the tax exemptions in their report, they projected that off budget tax expenditures would total almost $40 billion while only collecting revenue totaling some $32.6 billion.

Of the 694 current tax exemptions about 450 are discretionary.  The Department of Revenue projected that in the 2017 to 2019 Biennium that of the $54 billion in projected tax expenditures, some $30 billion would fall into “potential revenue gains”.  This legislation does not mandate wholesale repeal of tax expenditures.  It asks for accountability and transparency and biennial review and gives the legislature the ability to act to end exemptions if they do not meet the priorities of government the same as expenditures in the regular biennial operating appropriations budget must.

Concern about the current system includes a current quickly dated Tax Exemption report by the Department of Revenue every 4 years.  Most other states in the country update their report every 2 years or less. California updates their Tax Expenditure report every year.

Companies like Microsoft, Starbucks, Expedia, Adobe and Boeing all must report to their stockholders every year and issue quarterly profit and loss statements.  Their financial statements are scrutinized by their stockholders. It does not make sense that Washington State does not have more accountability and transparency in its tax expenditures as part of sound fiscal policy.

Only 73 of the 694 listed exemptions have sunset provisions. This means 89% of the tax expenditures have no sunset provision and never require the Washington State legislature to ever vote on them again. Meanwhile all expenditures in the regular operating appropriations budget are scrutinized and voted on every 2 years with adjustment made in the 2nd year of the biennium.

Also in the Tax exemption report, 54 exemptions are listed as “unable to disclose” the amount of revenue involved.  Businesses and other entities are benefiting from state tax law in getting exemptions and lower or no taxes. The public has a right to know the value of these exemptions.  We require that accountability in the regular budget appropriations process – we don’t say we’re spending state revenue but the public doesn’t have the right to know because the recipient doesn’t want us to know what they are getting.

With the current lack of accountability and transparency and sound fiscal review and evaluation as to whether current tax expenditures meet the state priorities of government and have clear measurable objectives as to their effectiveness in meeting state needs, taxpayers and citizens in this state increasingly believe state government and the legislature are not doing their job. Please step up and vote to fix this broken tax expenditure system that severely lacks needed transparency, accountability and sound fiscal management of our total state budget.

Steve Zemke

Director Tax Sanity

steve@taxsanity.org

www.taxsanity.org

End Tax Exemptions as Off Budget Spending by Adding Them to the State Budget

 End Tax Exemptions as Off-Budget Spending

by Adding Them as Tax Expenditures to the State Budget!

Washington State HB 1500 -the Tax Exemption Transparency and Accountability Act of 2017 will have a hearing in the State House Finance Committee on Tues. Jan 31st.  Please attend the hearing or comment on the bill on line at www.leg.wa.gov.

 Why is HB 1500 needed?

We don’t generally think of them as such but tax exemptions, preferences, deductions, credits and deferrals are off budget expenditures. They lack the accountability and transparency that exists for other expenditures the state makes as part of the biennial budget process.

Taxpayers deserve to know who is receiving these tax exemptions, how much money is involved and for what reason they are given.

According to the Washington State Department of Revenue’s  2016 Tax Exemption Study, while the State expects to collect some $7.4 billion in B&O tax revenue in the current 2015 -2017 biennium, it exempts from collection some $11.4 billion. When sales and use taxes were included with the analysis, the results are similar – the state expects to collect some $18.9 billion in revenue from sales and use tax, while exempting some $16.9 billion in revenue

Washington State has created some 694 tax exemptions over the years. Over 450 of these are discretionary tax exemptions, not required by Federal or State constitutional law. These discretionary tax exemptions will account for over $28.3 billion in B &O and sales/use tax revenue not collected in the current biennium..

Including property tax exemptions the 2016 Department of Revenue Report projects that in total, Washington State will see as off budget tax expenditures almost $40 billion in tax exemptions this biennium while only collecting revenues of $32.6 billion for the Legislature to fund its biennial budget according to the Department of Revenue.

HB 1500 introduced by Rep.Pollet and 32 other sponsors would require the governor to propose and the state legislature to adopt a tax expenditure budget every 2 years as part of the biennial omnibus operating appropriations act. A companion bill, SB 5513 has been introduced in the WA State Senate by Senator David Frockt with 12 other sponsors.

HB 1500 / SB 5513 would give the Washington State Legislature an opportunity to periodically evaluate the need and effectiveness of the state’s tax exemptions in meeting current state needs. They would do this at the same time they are making budget decisions about prioritizing other state expenditures for public services as part of the biennial budget appropriations process.

What would HB 1500 /SB 5513 – the Tax Exemption Transparency and Accountability Act do?

 This measure would require new and existing discretionary tax exemptions to be authorized every two years in a tax expenditure budget. It will add much needed transparency and accountability to the hundreds of exemptions and preferences, along with their cost and how each decision to spend money on an exemption or preference is a choice to expend funds for this purpose with particular beneficiaries.

The tax expenditure budget would detail the fiscal impact, purpose, and effectiveness in meeting the purpose of each tax exemption.

 Tax exemption not included in the tax expenditure budget would expire at the end of the calendar year in which the budget is adopted.

Contact your Legislators at www.leg.wa.org and urge them to support the Tax Exemption Transparency and Accountability Act.

 Action item – Urging your Legislators to pass HB 1500 and companion bill SB 5513 is easy. You can leave them a message by going to www.leg.wa.gov, entering 1500 or 5513 for the bill number after clicking the bill information link and then clicking on “comment on this bill.” Or call the Legislative hotline at 1-800-562-6000 and leave a message to for your legislators and the Governor to support HB 1500 and SB 5513 to create a tax expenditure budget as part of the biennial budget appropriations process. And be sure to thank your legislators if they are a sponsor of this legislation. Their support is appreciated.

 Legislators sponsoring HB 1500 – Pollet, Farrell, Appleton, Tarleton, Ryu, Wylie, Santos, Marci, Doglio, Jinkins, Orwall, Tharinger, Stonier, Kagi, Fitzgibbon, Kloba, Stanford, Berquist, McBride, Ortiz-Self, Goodman, Dolan, Cody, Pettigrew, Riccelli, Sells, Hudgins, Kirby, Lovick, Frame, Peterson, Ormsby, Pellicciotti

 Legislators sponsoring SB 5513 – Frockt, Hasegawa, Miloscia, Rolfes, Saldana, Keiser, Wellman, Conway, Chase, Billig, Kuderer, Hunt, McCoy

 

 

 

For more information:

Contact Steve Zemke – Director Tax Sanity, steve@taxsanity.orgwww.taxsanity.org,  

2017 Tax Exemption Transparency and Accountability Act to be Filed in Legislature

Tax Exemption Transparency and Accountability Act 2017

Representative Gerry Pollet and Senator David Frockt are filing updated versions of the Tax Exemption and Transparency Act that we filed in previous sessions of the Washington State Legislature. In the 2015 – 2016 Legislative session it was HB 1239 in the House and had 26 sponsors. The Senate Bill was SB 5492 and had 12 sponsors.

Why is this legislation needed?

Tax exemptions, preferences, deductions, credits and deferrals are off budget expenditures. They lack the accountability and transparency that exists for other expenditures the state makes as part of the biennial budget process. Taxpayers deserve to know who is receiving these tax exemptions, how much money is involved and for what reason they are given.

According to the Washington State Department of Revenue’s  2016 Tax Exemption Study, while the State expects to collect some $7.4 billion in B&O tax revenue in the current 2015 -2017 biennium, it exempts from collection some $11.4 billion. When sales and use taxes were included with the analysis, the results are similar – the state expects to collect some $18.9 billion in revenue while exempting some $16.9 billion in revenue

Washington State has created some 694 tax exemptions over the years. Over 450 of these are discretionary tax exemptions, not required by Federal or State constitutional law. These discretionary tax exemptions will account for over $28.3 billion in B &O and sales/use tax revenue not collected in the current biennium.

Including property tax exemptions the 2016 Department of Revenue Report projects that in total, Washington State will see as off budget tax expenditures almost $40 billion in tax exemptions this biennium while only collecting revenues of $32.6 billion for the Legislature to fund its biennial budget. .

The taxpayers of this state have a right to know:

  • Who is getting these tax breaks?
  • How much money is involved?
  • Are these tax breaks benefiting the public?

Since these tax breaks affect the overall revenue available to the state and shift the tax responsibility onto those who don’t get the tax breaks, taxpayers have a right to know the answers to these three questions.

To be able to answer these questions, there is an urgent need to increase the transparency and accountability of Washington State’s prolific use of tax exemptions.

This legislation would do that by requiring the governor to propose and the state legislature to adopt a tax expenditure budget every 2 years as part of the biennial omnibus operating appropriations act. This would give the Washington State Legislature an opportunity to periodically evaluate the need and effectiveness of these exemptions in meeting current state needs. They would do this at the same time they are making budget decisions about prioritizing other state expenditures for public services as part of the biennial budget appropriations process.

 What would the Tax Exemption Transparency and Accountability Act do:

 This measure would require new and existing discretionary tax preferences to be authorized every two years in a tax expenditure budget. It will add much needed transparency to the hundreds of exemptions and preferences, along with their cost and how each decision to spend money on an exemption or preference is a choice to expend funds for this purpose with particular beneficiaries.

The state biennial omnibus operating appropriations act would be required under this measure to include a tax expenditure budget to approve new and existing discretionary tax preferences, including exemptions, deductions, credits, and deferrals. The tax expenditure budget would detail the fiscal impact, purpose, and effectiveness in meeting the purpose of each tax preference. Tax preferences not included in the tax expenditure budget would expire at the end of the calendar year in which the budget is adopted.

Tim Eyman’s Latest Folly – Initiative 1366 – Rule by the 12%

The Washington State Constitution currently says that a majority vote of our state Legislators is required to pass legislation. That means that 50% of the members of the Washington State House of Representatives and 50% of the members of the Washington State Senate must vote in favor of passing any bill. That includes any bills to raise revenue or repeal a tax exemption or reform our regressive tax system. 50% of the 98 member House is 50 members. 50% of the 49 member Senate is 25 members.

On July 3, 2015 Tim Eyman filed with the Washington Secretary of State some 334,000 signatures on Initiative 1366 to the people. Just over 246,000 valid signatures (8% of those who voted in the last Governor’s race) are required to place an initiative on the November general election ballot. So the odds are very high that this measure will be on the November 3, 2015 ballot.

Initiative 1366 is an extortion style initiative, proposing to cut $1 billion per year from the Washington State budget unless Legislators by June 2016 place a Constitutional Amendment on the Ballot to require a 2/3 vote of both Houses of the Legislature to raise any tax or repeal any tax exemption.

The consequences are staggering if voters pass this measure. Because both Houses of the Legislature would have to pass any bill increasing taxes, as few as 12% of the members of the State Legislature would have the power to overrule a 50% majority vote in both Houses to raise revenue.

It may sound enticing to buy Eyman’s libertarian rhetoric to make it harder to raise revenue by requiring a 2/3 vote of both Houses. But this means that only 1/3 of the Legislators in either the House or the Senate is all that’s required to kill a bill to raise revenue.

The House has 98 members. That means a minority voting block of only  34 House members (or 23% of all Legislators) could kill revenue bills or a budget raising new revenue.

The Senate has 49 members. A 1/3 minority voting block of 17 Senators (or 12% of all Legislators) could kill any bill that increased revenue.

Since a vote to kill any revenue increase under Eyman’s proposed  Constitutional amendment would require a 2/3 vote in both Houses, a minority caucus of only 17 anti tax Senators out of 49 voting NO would prevent passage of any tax or revenue increase  bill. 17 Senators out of a total of 147 Legislators in both Houses is equal to only 12% of the State Legislators.

This is the dirty little secret that Eyman and his anti-tax large funders do not want the public to understand – that I-1366 would turn over the tax setting authority of the state to only 12% of our state Legislators. This is a much easer number of Legislators for Big Oil and Big Corporations and other special interests to elect to office than 50% of our state Legislators. It is much easer for them to convince only 12% of the state legislature to vote NO on closing tax loopholes than 50%..

The consequences of overturning majority rules and imposing Eyman’s minority rules are mind boggling. To go from 50% of Legislators required to pass a revenue bill to allowing 12% of the legislators to prevent passage of a revenue bill would turn democratic rule on its head and give unprecedented power to a tiny group of Legislators. This is totally contrary to the idea of proportional representation and elected Legislators of the state having the power to make decisions by majority votes, including tax and revenue issues.

The founders of our Federal Government very clearly stated the danger of requiring more than a majority of Legislators to pass legislation. The drafters  of the Washington State Constitution also reached the same conclusion – that any so called “supermajority” voting requirement to overrule the will of a majority would allow for a tyranny of a minority.

Vote NO on Initiative 1366 this November. It is Tim Eyman’s Libertarian dream and folly trying to destroy the power of the people to have a government based on majority voting by turning tax setting policy and our ability to pass state budgets  over to a tiny minority ant-tax voting block of 12% of our elected Legislators. It would give unprecedented power to a few to continue to shrink government and allow an oligarchy of a few rich people to literally spend enough money to elect and keep elected an anti-tax minority to keep in place “Rule by the 12%”

Eyman’s proposed constitutional amendment would end majority rules for voting that is in our state constitution and replace a requirement for 50 % majority votes in both Houses with “Rule by the 12%.  

Say NO to Eyman’s latest folly by voting NO on Initiative 1366 on November 3, 2015.

Say No to Eyman’s “Rule by the 12%”

 

 

 

Washington State Democratic Party Urges Voters to Reject Initiative 1366

The Washington State Democrats have urged voters to reject Initiative 1366. At their April 12, 2015 meeting in Pasco Washington they passed a resolution opposing Tim Eyman’s Initiative 1366.

Initiative 1366, according to a May 17, 2015 Seattle Times article  is expected to be on the Nov 2015 ballot.

Buoyed by new wealthy patrons, Eyman’s Initiative 1366 — which would punch a $1 billion a year hole in the state budget unless lawmakers refer a tax-limiting constitutional amendment to voters — looks well on its way to the November ballot.

The latest Eyman campaign already has raised more than $1.1 million and spent $750,000 on paid signature gatherers.”

Initiative 1366 adopts Senator Ted Cruz Tea Party style tactics, using extortion tactics to try to impose minority rule over Washington State’s budget and revenue policy. Its purpose is to slash a billion dollars a year from the Washington State budget unless Washington State Legislators place  a constitutional amendment for 2/3 votes to raise revenue or repeal tax exemptions on the ballot.

The Washington State Constitution says only Legislators have the power to place a constitutional measure on the ballot by a 2/3 vote of both houses. The same 2/3 threshold Eyman is trying to impose for raising revenue he is iunable to convince legislators to do for a constitutional amendment. So he  is resorting to extortion and bullying tactics. Who loses are the children in our state if revenue is cut $1 billion/yr.

How can a majority vote compel a 2/3 vote? This is most likely an unconstitutional  abuse of power and not legal. Voters should just reject such extortion style tactics.

Below is the text of the resolution passed by the Washington State Democrats:

Resolution Opposing Initiative Measure 1366

WHEREAS Tim Eyman, Mike Fagan, and Jack Fagan have sponsored and are circulating petitions for Initiative 1366, filed on January 5th, 2015 as an initiative to the people for 2015;

WHEREAS I-1366 would reduce the sales tax, and therefore approximately $1 billion in state revenue every year, thereby preventing the increased spending on K-12 education  required by the McCleary decision, while jeopardizing higher education, transportation  and the social safety net, unless the State Legislature follows the dictates of the initiative  and sends to the voters a constitutional amendment undemocratically requiring a two- thirds vote in each House of the Legislature to raise revenue or repeal any tax loophole;

WHEREAS the Washington State Supreme Court in February 2013, in League of  Education Voters v. State of Washington, struck down as unconstitutional a  requirement of a supermajority vote to raise revenue, and Eyman’s I-1366 comprises a  devious attempt to evade that ruling by coercing lawmakers into colluding in his  underhanded scheme to overturn it by holding all state funding hostage;

WHEREAS either the loss of a billion dollars per annum to our common wealth or the  undemocratic modification of our Constitution to require two-thirds votes to raise and  recover revenue would result in serious long-term damage to the communities of  Washington State;

WHEREAS our state’s founders understood that democracy requires majority rules  with minority rights, and, after much debate and deliberation, they wrote a  Constitution for Washington specifying that bills in the Legislature are passed by a  majority vote, defined as greater than fifty percent – no more, and no less;

WHEREAS any higher threshold for the passage of legislation would result in power  being concentrated in the hands of a few (rather than the many), such as one-third of  one house of the Legislature – as when I-601 and its clones I-960, I-1053, and I-1185 were  illegitimately in effect;

WHEREAS allowing tax exemptions to be created by a majority vote, but repealed only  with a vote of two-thirds or greater, represents an unfair double standard that would  make it nearly impossible to reform our outdated and regressive tax system; and

WHEREAS I-1366 would further violate Article IX of the Washington State Constitution  by making it impossible for the state to fulfill its paramount duty of educating  Washington’s youth;

THEREFORE BE IT RESOLVED that the Washington State Democrats urge all  Washingtonians to refuse to sign Tim Eyman’s Initiative 1366 and, if it is placed on the  ballot, to oppose the measure;

THEREFORE BE IT FURTHER RESOLVED that we encourage every activist and  citizen who supports the values that Washington was founded upon to join the  coalition opposing I-1366.

Here is the official ballot title and summary from the Washington State Secretary of State’s website:

Ballot Title
Initiative Measure No. 1366 concerns state taxes and fees.

This measure would decrease the sales tax rate unless the legislature refers to voters a constitutional amendment requiring two-thirds legislative approval or voter approval to raise taxes, and legislative approval for fee increases.

Should this measure be enacted into law? Yes [ ] No [ ]

Ballot Measure Summary
This measure would decrease the state retail sales tax rate on April 15, 2016, from 6.5 percent to 5.5 percent. The sales tax rate would not be decreased if, by April 15, 2016, two-thirds of both legislative houses refer to the ballot a vote on a constitutional amendment that requires two-thirds legislative approval or voter approval to raise taxes, and majority legislative approval to set the amount of a fee increase.

View Complete Text PDF

Washington Senator Sharon Nelson Speaks Out on the Need for Tax Reform

At a special hearing in Olympia representing Washington residents from all 49 legislative districts on May 4, 2015 the voices were loud and clear about the need for tax reform.

Washington State for a number of years has earned the unfortunate distinction of being the most regressive state in the country in terms of state and local taxes. The Institute on Taxation and Economic Policy noted that the poorest 20% in Washington State paid 16.8% of their income in state and local taxes while the richest 1% paid only 2.4%.

Senator Sharon Nelson concisely stated the reason why reform was needed:

“Washington’s outdated and unfair tax structure is in dire need of a makeover,” said Senate Democratic Leader Sharon Nelson, one of more than a dozen Democratic lawmakers who were in attendance for Monday’s hearing. “It is unconscionable to continue to prop up a system that asks more and more from people who are barely getting by, while at the same time giving away millions in tax breaks and asking for very little from the super wealthy. We’re not trying to punish anyone, but it’s not unreasonable to ask those who have been very financially successful to pay their fair share.

“We are all in this together and it’s time we had a tax structure that reflects that.”

Unfortunately for most of the last 20 years Washington State was operating under legislation passed by voters that in 2013 was ruled unconstitutional by the Washington State Supreme Court – namely the requirement started under Initiative 601 and continued by initiatives put on the ballot by Tim Eyman and approved by voters that any legislation to raise revenue or repeal tax exemptions required a 2/3 vote of both houses of the Legislature.

Under these initiatives unfortunately any tax reform that happened, even a revenue neutral one to make our taxes less regressive, required a 2/3 vote because any tax “increase” required a 2/3 vote even if overall the change was revenue neutral.

Unfortunately the Republicans took over the Senate in Washington State in 2013 and they have continued to oppose efforts to raise revenue or institute tax reform to change Washington State’s regressive tax system.

For change to occur Democrats supporting tax reform will have to take back the Senate and elect enough Representatives who support reform to make it happen in the house.  They will also have to re-elect Democratic Governor Jay Inslee as a Republican Governor would more than likely veto any tax increase that increased taxes, such as on the rich

Initiative 1366 is Eyman’s Latest Effort to Increase Income Inequality

Initiative 1366 is Tim Eyman’s 2015 initiative campaign to protect the wealthy and corporations in Washington State. It is both an appeal to greed and a guaranteed way to prevent reforming Washington State’s regressive tax system.

Initiative 1366 is an extortion style measure designed to fulfill an Eyman dream – to force the Washington State Legislature to place a constitutional amendment before the voters to allow a minority of one third of the Legislators in one house of the Legislature to prevent raising any new revenue or repealing any tax exemptions.

The Washington State Supreme Court ruled in 2013 that requiring a 2/3 vote of Legislators to enact tax increases or repeal tax exemptions as was passed by voters by initiative was unconstitutional. As noted in the Tacoma News Tribune at the time:

“In a landmark ruling 20 years in the making, the Washington State Supreme Court this morning struck down Initiative 1053 as unconstitutional. The court majority said the constitution controls the majority needed for tax hikes and the constitution requires only a majority of the members of the House and Senate.

That means the only way for backers of the so-called super-majority for tax hikes can achieve that goal is to go through the more-burdensome method of amending the constitution which itself requires a two-thirds vote of both houses and then a majority vote of the people.”

Unfortunately for Eyman in an ironic twist, under the Washington State Constitution requiring a 2/3 vote by the Legislature to propose a constitutional amendment, Eyman is unable to muster a 2/3 vote. So Eyman is trying to force the Legislature to act. He is using extortion tactics reminiscent of Senator Ted Cruz.

The Washington State Supreme Court in it’s McCleary decision said the state was shirking its constitutional responsibility by not adequately funding public education. Eyman’s I-1366, rather than moving the state forward, proposes to blow a big hole in the ability of the state to perform it’s constitutional responsibilities.

I-1366 proposes to cut the state sales tax from 6.5% to 5.5% decreasing state revenues by $1 billion per year unless the Legislators comply with Eyman’s demands. and put a constitutional amendment on the ballot.

Besides this immediate impact if voters approve I-1366 and don’t act on Eyman’s demand for a 2/3 vote on a 2/3 constitutional amendment, a 2/3 vote requirement in the Constitution  would permanently change the way the Legislature functions by turning revenue decisions over to a minority 1/3 faction of the legislature to overturn any decision by a majority vote to raise revenue or repeal tax loopholes. In a bizarre twist it would allow a majority vote to enact or extend tax exemptions but require a 2/3 vote to repeal them.

Tim Eyman is busy collecting signatures by paid canvassers to place Initiative 1366 on the November 6, 2015 ballot.  He has until July 2, 2015 to collect a minimum of 246,372 valid signatures.

Ballot Title
Initiative Measure No. 1366 concerns state taxes and fees.

This measure would decrease the sales tax rate unless the legislature refers to voters a constitutional amendment requiring two-thirds legislative approval or voter approval to raise taxes, and legislative approval for fee increases.

Should this measure be enacted into law? Yes [ ] No [ ]

Ballot Measure Summary
This measure would decrease the state retail sales tax rate on April 15, 2016, from 6.5 percent to 5.5 percent. The sales tax rate would not be decreased if, by April 15, 2016, two-thirds of both legislative houses refer to the ballot a vote on a constitutional amendment that requires two-thirds legislative approval or voter approval to raise taxes, and majority legislative approval to set the amount of a fee increase.

View Complete Text PDF

Do not sign I-1366 and if it gets on the Nov. 6th ballot Vote NO. Don’t turn our Legislature over to special interests, the wealthy and Big Corporations.

See also No on 1366 website

Brad Owen Acts to Uphold the Washington State Constitution

In a ruling today, March 2, 2015,  Brad Owen, the Lt Governor and presiding officer of the Senate did the right thing. He ruled that the Senate rule passed by the Republicans in the Washington State Senate earlier this year to require a 2/3 vote to raise revenue was unconstitutional and thus void. As noted in a press release by the Northwest Progressive Institute, Brad Owen stated:

“The President has previously stated, The Senate cannot pass a rule that violates the state Constitution,” …: “Perhaps that statement should be clarified to read, The Senate may adopt an unconstitutional rule, but the President will not enforce it.”

The Washington State Supreme Court ruled in 2013 that requiring a 2/3 vote of legislators to raise revenue was unconstitutional because the Washington State Constitution said laws shall be passed by majority votes. As written in the Tacoma News Tribune at the time:

The language and history of the constitution evince a principle favoring a simple majority vote for legislation,” wrote Justice Susan Owens for the 6-3 majority (previous posts mistakenly said Chief Justice Madsen wrote majority). “The State’s proposed reading of article II, section 22 would fundamentally alter our system of government, and such alteration is possible only through constitutional amendment. Washington’s government was founded as a representative democracy based on simple majority rule.” “The Supermajority Requirement unconstitutionally amends the constitution by imposing a two-thirds vote requirement for tax legislation. More importantly, the Supermajority Requirement substantially alters our system of government, thus enabling a tyranny of the minority.”

Brad Owen based his decision on the Washington State Supreme Court decision. As the Tacoma News Tribune reported today:

“The state Senate’s presiding officer said Monday he won’t enforce a Senate rule making it harder to raise taxes.The rule violates the state constitution, Lt. Gov. Brad Owen ruled. With the ruling by Owen, a Democrat, the votes of 25 of 49 senators are required to move a tax through the Senate, the same 50-percent-plus-one majority as required in the House. The rule required a two-thirds supermajority to bring a bill to a final vote if the bill created new taxes. In invalidating it, Owen relied on a 2013 state Supreme Court ruling striking down voter-passed requirements for two-thirds supermajorities for taxes.”

Unfortunately the Tacoma News also gives a plug for libertarian anti tax Tim Eyman who for years pushed the unconstitutional 2/3 voting requirement in initiative campaigns. He is now pushing a “Ted Cruz style shut down the government stop educating our kids until I get my way” initiative.While he like the 2/3 voting proposal when it suits his purpose, he hates it when it is an obstacle to get his way.
The Washington State Supreme Court said the only way a 2/3 rule could apply was if it was in the Washington State Constitution. But that’s the kicker – it takes a 2/3 vote of the legislature to put a constitutional amendment on the ballot. Eyman doesn’t have anywhere near what he needs for 2/3 since Republicans are his main base of support.  And they are in the minority in the House and barely 2 votes over a majority in the Senate.
Eyman’s answer – have voter’s cut $1 billion from the state budget until they put a constitutional amendment on the ballot. Voters would be ill served by starting to hold the legislature hostage to ransom since voters would be the ones suffering by seeing public education and other services cut even more.
Many voters miss the connection that who really benefits is large corporations who don’t want tp pay taxes like for cleaning up their pollution. Big oil companies like BP and Tesoro gave Eyman money in the past so the legislature couldn’t raise funds from them to clean up oil pollution. It the average individual and family taxpayers who suffer as a result because they have to pay instead of the polluters who are making huge profits.
In addition BP and other corporations don’t want to see their tax loopholes end.  While they only take a majority vote to enact, under the 2/3 proposal it would take a 2/3 vote of the legislature to end them, even if they provided no benefit to the state. The 2/3 vote proposal actually puts the minority in charge of tax policy since 1/3 of the Legislators in either house could then block tax legislation.
All in all it is a bad dealer for working families and most taxpayers in our state. Corporations love the idea. Don’t be fooled.  Don’t support Eyman’s latest corporate benefiting initiative that would further damage education in our state. Don’t sign Initiative 1366.

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Why Enacting HB 1239/SB 5492 Would be Good Policy for Washington State

Tax preferences and tax incentives are called tax expenditures by most other states and the US Congress – they are revenue that is not collected. Not collecting this revenue from certain taxpayers is a form of picking winners and losers and the end result is the same as if you made a direct expenditure to that same entity as a line item expenditure in the general operating budget.

HB 1239 / SB 5492 – the Tax Exemption Transparency and Accountability Act – addresses the issue of the magnitude and consequences of off budget spending in the form of tax expenditures in Washington State.  This off budget spending from the tax base creates a lack of accountability and transparency in how tax revenue is dealt with. Tax expenditures are not included in the biennial  state budget process and this creates a lack of accountability and transparency.

One big problem with the state budget process is that we are one of only 6 states according to a 2011 Center on Budget and Policy Priorities Report that do not produce a tax expenditure report every 2 years or less. Our 2012 Tax Exemption Report is based on 2011 data and is 4 years out of date. The result is that tax exemption data is not even coordinated and integrated with the budget process.

The magnitude of off budget spending in the form of tax expenditures is staggering when compared to the regular expenditures in the state budget. The dollar value of tax expenditures in our state is about the same amount as actual revenue we collect as taxes and spend directly in the state budget.

The Washington State Department of Revenue noted in their 2012 Tax Exemption Report that the 2011-2013 budget projected collecting revenue of $22.8 billion and giving out tax expenditures equal to $21.2 billion.

They projected collecting $6.5 billion in B&O taxes but exempting as tax expenditures $7.7 billion.

In other words before we have even start looking at the regular appropriations budget we have already given away half of the potential revenue we would have if we had no tax exemptions.

There is no biennial linkage of what the Joint Legislative Audit and Review Committee (JLARC) does and the budget process for reviewing tax exemptions like what the Legislature does with the regular budget. JLARC has been producing reports for 8 years of a 10 year cycle. Very few of it’s recommendations have been acted on by the State Legislature. They are presented piecemeal over a 10 year cycle in a hearing before the House and Senate. No action is required to be taken by the Legislature.

Tax expenditures  are investments made at the  discretion of the Legislature in our state just like the expenditures they make as part of the omnibus budget appropriations bill they pass every two years. But tax expenditures never get the same scrutiny regular expenditures do because they are not part of the budget process.  They should be and that’s what HB 1239/ SB 5492 does.

HB 1239 / SB 5492 requires the State Legislature  to scrutinize and review the tax expenditures every two years and determine whether they are producing the results they were intended to.  They need to be evaluated the same as other expenditures in the state budget as to whether they are meeting the state’s needs and the priorities of government and are accomplishing the purpose for which they were enacted..

Tax expenditures are an investment just as if you invested in the stock market. Legislator’s by their tax expenditure and budget actions are  investing in the state and its economy.  It makes sense for the Legislature to scrutinize its whole spending portfolio every 2 years, not just half of it. Unfortunately individual tax expenditures which represent about half of the potential base tax revenue in the state are only reviewed piecemeal once every 10 years. And even then a number of tax expenditures are exempted from review. And for 90% of tax exemptions which have no sunset provisions on them there is no requirement for the Legislature to do anything.

Would you think the State Legislature was doing it’s job in scrutinizing state spending under the budget by only looking at individual expenditures once every 10 years? We don’t pass a state budget for 10 years at a time and decide that 90% of the expenditures actually never have to be adopted again..  Why does the Legislature think it shouldn’t have to reaffirm tax expenditures every 2 years just like it does with other state spending under the budget process?

It’s time for the Washington State Legislature to step up and be responsible for examining all state spending every two years by adopting a tax expenditure budget as part of the regular biennial budget appropriations process. It needs to enact HB 1239 / SB 5492  now!

Basic Facts on Tax Exemption Transparency and Accountability Act 2015

Tax Exemption Transparency and Accountability Act 2015–HB 1239 & SB 5492

Tax exemptions, preferences, deductions, credits and deferrals are off budget expenditures. They lack the accountability and transparency that exists for other expenditures the state makes as part of the biennial budget process. Taxpayers deserve to know who is receiving these tax exemptions, how much money is involved and for what reason they are given.

According to the Washington State Department of Revenue’s last Tax Exemption Study in 2012, while the State collected some $6.5 billion in B&O tax revenue in the previous biennium, it exempted from collection some $7.6 billion. When sales and use taxes were included with the B&O tax collected, the results were similar – the state collected $21 billion in revenue but exempted almost $20 billion total.

Washington State has created some 650 tax exemptions over the years. Over 450 of these are discretionary tax exemptions, not required by Federal or State constitutional law. These discretionary tax exemptions account for over $24 billion in revenue not collected.

The taxpayers of this state have a right to know:

  • Who is getting these tax breaks?
  • How much money is involved?
  • Are these tax breaks benefiting the public?

Since these tax breaks affect the overall revenue available to the state and shift the tax responsibility onto those who don’t get the tax breaks, taxpayers have a right to know the answers to these three questions.

To be able to answer these questions, there is an urgent need to increase the transparency and accountability of Washington State’s prolific use of tax exemptions.

This legislation would do that by requiring the governor to propose and the state legislature to adopt a tax expenditure budget every 2 years as part of the biennial omnibus operating appropriations act. This would give the Washington State Legislature an opportunity to periodically evaluate the need and effectiveness of these exemptions in meeting current state needs. They would do this at the same time they are making budget decisions about prioritizing other state expenditures for public services as part of the biennial budget appropriations process.

This measure would require new and existing discretionary tax preferences to be authorized every two years in a tax expenditure budget. It will add much needed transparency to the hundreds of exemptions and preferences, along with their cost and how each decision to spend money on an exemption or preference is a choice to expend funds for this purpose with particular beneficiaries.

The state biennial omnibus operating appropriations act would be required under this measure to include a tax expenditure budget to approve new and existing discretionary tax preferences, including exemptions, deductions, credits, and deferrals. The tax expenditure budget would detail the fiscal impact, purpose, and effectiveness in meeting the purpose of each tax preference. Tax preferences not included in the tax expenditure budget would expire at the end of the calendar year in which the budget is adopted.

Increasing tax exemption transparency and accountability

2015 House Bill 1239 Sponsors:

Representatives  Pollet, Appleton, Reykdal, Moscoso, S. Hunt, Stanford, Fitzgibbon, Kagi, Farrell, Ortiz-Self, Dunshee, Walkinshaw, Pettigrew, Tharinger, Ryu, Sells, Tarleton, Santos, Goodman, Cody, Wylie, McBride, Bergquist, Riccelli, Ormsby, Kirby

2015 Senate Bill 5492 Sponsors:

Senators Frockt, Kohl-Welles, Hasegawa, Billig, Conway, Keiser, Chase, Rolfes, Ranker, Jayapal, Miloscia, McAuliffe

HB 1239/SB 5492 – Official Bill Digest

Establishes the tax exemption transparency and accountability act.

Creates a tax expenditure budget as part of the biennial budget adopted by the legislature.

Reforms the tax expenditure process by including tax expenditures in a tax expenditure budget in the biennial state budget process and requires they be readopted every two years as part of the budget process or they expire.

Requires the joint legislative audit and review committee to report its findings and recommendations for scheduled tax expenditures to the citizen commission for performance measurement of tax expenditures by June 30th of each year.