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Mon March 18, 2013
Gov. Inslee eyes tax 'loopholes' for elimination, but feasible?
Hopes for a rosier budget outlook in Washington are dimming. Expected savings in Medicaid haven’t materialized. And many state lawmakers expect this week’s quarterly revenue forecast to show a downward slide. Add to that, a Supreme Court ruling that requires more funding for schools.
In response, Gov. Jay Inslee is expected to announce soon a list of tax “loopholes” — as he calls them — he wants to eliminate to fund schools. But closing tax exemptions is easier said than done.
'I’m not sure these industries need a break right now'
As a candidate for governor, Inslee ruled out a general tax increase. But often said he was open to closing “unproductive” tax breaks. In his final debate last fall, the Democrat was pressed to name specific examples. He mentioned two: one for bull insemination, and another tax break that today mostly benefits oil refineries.
“Now I drive a car, I use gasoline. (There is) nothing wrong with gasoline,” he said. “But in a current condition, we’re being charged close to $4 a gallon. I’m not sure these industries need a break right now.”
It appears Inslee was referring to a 60-year-old tax exemption originally aimed at manufactures of wood products. Today, Washington’s five oil refineries claim as much as $35 million a year from that tax preference. Marilyn Watkins with the left-of-center Economic Opportunity Institute says this tax break is just one example of the more than 600 holes in Washington’s tax bucket.
“Some of them little, tiny holes, a few pretty darn big holes, but it makes it very hard to fill that bucket when you always have water leaking out of it,” she said.
Minding the constituency of each ‘loophole’
Here’s lesson number one when it comes to closing so-called tax loopholes: every tax exemption, credit or preferential rate has a constituency.
Take the oil and gas industry. Bill Kidd is a spokesman for BP’s Cherry Point refinery, the largest in the state. He says the tax break Inslee identified in that debate is for fuel created on-site as a byproduct of the refining process.
“(Fuel) that we make one second and burn the next,” Kidd said. “You know, this state is pretty high on recycling in general, and so to me, it’s an odd commodity to have any thought of taxing in the first place.”
'Just a torrent of pressure’
The governor says most tax breaks have some merit, but funding education is the top priority. Here’s lesson number two. For every tax exemption somebody wants to close, there are many more new ones being proposed. Even the governor is suggesting some small ones as part of his jobs plan. And he’s not alone. Just ask House Finance Chairman Reuven Carlyle, a Seattle Democrat.
“So in the Finance committee this year, I was presented with dozens and dozens of requests to create new tax exemptions or to reauthorize exemptions,” Carlyle said. “Jut a torrent of pressure.”
Last year, Carlyle proposed to put an expiration date on hundreds of existing ones. That got the attention of a lot of lobbyists, but didn’t go anywhere.
This year, the state Senate has unanimously passed a similar sunset for all future tax breaks. It also includes performance measures.
'A lot of those are in place for very specific reasons'
The prime sponsor of this year's bill is Senate Majority Leader Rodney Tom, a Democrat. But he’s skeptical about the governor’s desire to immediately close some exemptions as a way to raise money. Tom notes Democrats tried and failed to do that back when they had large majorities in the Legislature.
“We came out with that same song and dance, and at the end of the day, it was a pretty minimal number,” he said. “A lot of those are in place for very specific reasons due to the current nature of our tax code.”
Today, Tom leads the mostly-Republican Senate majority coalition that is tax-wary. That could make the governor’s goal of closing tax loopholes harder.
On the other hand, pressure is mounting to raise money for schools. The Washington Supreme Court has said the state is not adequately funding public education. That same court also just made it easier to raise revenue when it tossed out a super majority requirement for tax votes in the Legislature.