Tax Expenditures Need to Become Part of the State Budget

Tax expenditures are basically off budget spending. As one Washington State Legislator recently said, they are “gifts” of public money. They don’t have to be scrutinized the same as other state expenditures are when the biennial state budget is proposed and adopted. They don’t have to justify their existence year after year as other basic state spending does like for K-12 education or support for state colleges and universities. They don’t have to abide by provisions to balance the budget or not exceed state spending limits.

Citizen taxpayers are being deceived in the corporate and special interest manipulation of the legislative process. Tax exemptions that benefit special interests are lumped together by free market conservatives and the right wing as raising taxes on the middle class. Yet most of these exemptions benefit the corporate bottom line, not the common good.

Take as an example the latest Washington State Tax Exemption report dated 2012. When an exemption is given it means that a tax shift occurs so the responsibility falls on someone else. In the 2011-2013 biennial budget, some $21 billion was collected in B&O taxes and sales and use taxes. At the same time some $20 billion in tax expenditures were made by exempting from collection certain businesses and special interests from having to pay these same taxes.

Specifically on B&O taxes on business – the state gave out 176 tax breaks  totaling some $7.5 billion while collecting only $6.5 billion in revenue. The exemptions were 54% of the potential tax base. Tell me how you can run a state fairly and tax fairly when you’ve giving out more revenue in exemptions than you take in as revenue to support educating our kids and everything else we deem as priorities. It’s time to reform our broken tax expenditure system in this state.

By some measures Washington state does a better job of reporting on tax loopholes and evaluating them than most other states. But even this has had minimal impact on repealing tax expenditures that are of dubious value.  Under RCW 43.136 tax expenditures are being evaluated over a 10 year cycle by the Joint Legislative Audit and Review Committee (JLARC) and the Citizen Commission for Performance Measurement of Tax Preferences. Reports are being published and posted on line. You can see the reports here on our website by going to our tax expenditures link.

One problem is that the Legislature is not required to act on the recommendations that JLARC and the Citizen Commission comes up with. The recommendations are written up in a report and presented to the Legislature  in a hearing but almost all of the recommendations to date have been ignored.
In addition the legislation mandating the review of tax exemptions has loopholes itself. Read the language for yourself from RCW 43.136.045.

The commission must omit from the schedule tax preferences that are required by constitutional law, sales and use tax exemptions for machinery and equipment for manufacturing, research and development, or testing, the small business credit for the business and occupation tax, sales and use tax exemptions for food and prescription drugs, property tax relief for retired persons, and property tax valuations based on current use, and may omit any tax preference that the commission determines is a critical part of the structure of the tax system.”

The phrase ” …may omit any tax preference that the commission determines is a critical part of the structure of the tax system.” is a pretty powerful omission and explains why, among others, tax expenditures given to Boeing have not been reviewed.  The review process is a broken system in a number of ways and the only way it can be changed it seems is to put tax expenditures into the state operating budget and force them to compete with all other expenditures of state revenue.

The state budget process needs to go back to the priorities of government model used by Governor Gary Locke and use it to evaluate both revenue expenditures and tax expenditures giving a high, medium or low priority as to how the expenditures are meeting prioritized state needs. The Governor’s proposed budget uses the priorities of government model but the State Legislature is not required to do the same when it finalizes it’s budget.

These changes are not something the Legislature is  likely to do without strong public pressure.  Legislators are dependent on special interest contributions to get elected and anyone that proposes to cut the lucrative expenditures that go to special interests in the form of tax expenditures are going to lose support from moneyed interests that like things as they are.

This is why we believe that it will require a citizens initiative to put the issue before the voters. Voters have had to do this in a number of areas in the past, like when voters required disclosure public disclosure of campaign contributions and required polluters to clean up their toxic waste and raised the minimum wage and indexed it to inflation. The Legislature has shown that it is not up to the task of significant tax loophole reform and it will be up to the citizens and voters to do it.

What is a Tax Expenditure?

It is becoming more common these days to define a tax exemption, subsidy, loophole or exclusion as a tax expenditure. That can seem a little confusing until you understand what is happening. Catherine Rampell in an article entitled Tax Breaks: A Primer  explains it pretty well.

… “loopholes and subsidies” are formally called tax expenditures. The name comes from the fact that they are arithmetically equivalent to spending government money.

Here’s how: Charging a company one dollar less in taxes is effectively the same as giving a company one dollar; both leave the government with one dollar less, and the company with one dollar more. But politically, calling the subsidy a “tax break” sounds a lot better than calling it a “spending” gift.

The significance of this dollar wise this is best illustrated in budget terms here in Washington State by the following taken from the State’s 2012 Tax Exemption Study. Specific exemptions for B&O taxes for the 2011 -2013 biennium totaled some $20 billion while the actual revenue collected from these taxes equaled almost the same at $21 billion. Just getting rid of a few of these exemptions could easily bridge the approximately $1.3 billion shortfall now projected for our state the next two years. Continue reading

Need to Update RCW’s to Conform to Washington Supreme Court Decision on I-1053 and I-1185

The following letter was sent today to Washington State Attorney General Bob Ferguson:

Dear Attorney General Ferguson:

 I am wondering what the procedure is to have the RCW’s changed when the Washington State Supreme Court renders a decision declaring a law or part of a law unconstitutional. The Court has ruled that an initiative filed must conform to the current version of a law or it is not valid. Continue reading

Washington State Supreme Court Decision Will Make Tax Exemption Reform Easier

The Washington State Supreme Court  ruled on February 28, 2013 that Tim Eyman’s Initiative 1053 was unconstitutional. The ruling is a huge win for Washington State taxpayers because it throws out the supermajority vote requirement  to close any tax loophole that Eyman had put in the initiative. Tax exemptions are hard enough to close as it is without giving a minority of legislators the ability to trump a decision by a majority of legislators.

Voters last year passed Initiative 1185 which was pretty much a clone of I-1053.  Because  Initiative 1276 – the Txpayers Fiscal Reform Act we filed was based on current law at the time,  we put in provisions repealing parts of I-1185 dealing with the supermajority votes.  The RCW or Revised Code of Washington will now reflect the decision of the Washington State Supreme Court and we will be refiling our initiative deleting the parts relating to I-1053 and I-1185 that were ruled unconstitutional by the Supreme Court. This should make the initiative much easier to get support for because it narrows the scope of the initiative by not having to deal with the subject of supermajority votes.

The decision of the Washington State Supreme Court was the opinion they wrote in League of Education Voters vs the State of Washington. You can read by clicking on the link.



Senator Bernie Sanders – Budget Must Close Loopholes

Not funny how the Republicans refuse to close corporate tax loopholes.  Tax loopholes that don’t provide a benefit to taxpayers and working families, but which only add to the corporate profit sheet, are corporate welfare. As Sanders notes, corporate profit is at an all time high, while corporate taxes are  near a record low.

Corporations and the wealthy need to pay their fair share to keep the American economy going by helping to insure that Federal dollars are used to create jobs and provide basic human services, not further pad the pocketbooks of wealthy individuals and corporations. Congress needs to close tax loopholes as part of any plan to reduce budget deficits. Tax loopholes are expenditures of tax revenue that would otherwise be available to fund public services.

Here is the press release today from Senator Bernie Sanders of Vermont. Continue reading

Initiative Filed for Tax Loophole Reform

Taxpayers Fiscal Reform Act – 2013

Changes are needed in the ability of the Washington State Legislature to fund basic services like education and healthcare. The current state budget problems are made more difficult by the lack of flexibility of the Legislature to make decisions by a majority vote as directed by the Washington State Constitution and by a tax expenditure/exemption process that is shielded from legislative oversight by virtue of not being part of the normal budget process.

Many people are frustrated by the current stalemate in the legislative process and want more choices than just throwing up their hands and suffering more cuts in state services and more costs to working families. More options are needed for the voters than just saying we have no real choices.

One option is now moving forward. It would reform our broken tax exemption process. Initiative 1276 – the Washington State Taxpayers Fiscal Reform Act has been filed with the Secretary of State and assigned a ballot title.

Here is the official ballot title and summary: Continue reading