Opinion editorial by Rep. Terry Nealey: Tax preferences help Washington’s economy and families
Before the Legislature adjourns its regular session April 28, lawmakers will be seeking agreement on a two-year state operating budget. Frequently, as budget debates heat up, you’ll hear proponents of bigger government use their favorite phrase, “close tax loopholes,” as if there is an oversight in state law that allows some to escape paying taxes. But don’t be fooled. These “tax loopholes” are actually tax incentives, or officially known as “tax preferences,” that were intentionally enacted by the Legislature to provide specific tax relief. A main reason why Washington provides tax preferences is to attract and retain businesses and jobs. Washington is one of seven states that does not have an income tax. It relies on other taxes for revenue to operate state government. A substantial portion of Washington’s revenue is generated through sales taxes, business and occupation taxes (B&O), and property taxes. The B&O tax is based on gross receipts, not net income, regardless of whether or not that business makes a profit. For these reasons, many businesses pay higher taxes in Washington than in other states. That puts our state at a competitive disadvantage. Tax preferences for industries, such as aerospace, high tech and agriculture, keep Washington competitive, attract economic investment, and provide jobs in our state. Tax preferences also help Washington families, such as the sales tax exemptions on food, prescription drugs, and medical devices. Some say if many of the state’s 600 tax preferences were eliminated, think of how much more money the state could have for schools, public safety and social services. Unfortunately, it could also damage our economy, drive jobs from Washington, and create immense burdens for our families. That’s why the Legislature created an extensive review process in 2006, to ensure enacted tax preferences are working as intended. Under this process, a citizens commission selects tax preferences for a performance review. Each tax preference must undergo scrutiny once every 10 years. The review is conducted by the Joint Legislative Audit and Review Committee (JLARC), and it must recommend to the Legislature to either: (1) continue; (2) allow to expire; (3) continue and modify the expiration date; (4) review and clarify; or (5) terminate the preference. We have spent considerable time this session in the House Finance Committee considering JLARC’s recommendations. Bills advanced would extend expiring tax preferences for beekeepers, solar energy generating equipment, and wood chips from sawmills burned to produce electricity (hog fuel). House Democrats have proposed to eliminate 15 tax preferences, which would increase taxes by more than $750 million. Not all of these tax preferences have received a green light from JLARC for termination. My Republican colleagues and I are concerned tax increases could hurt our fragile economy and create further job losses. We should also remember state government is expected to take in an additional $2 billion if we leave these tax preferences in place. It’s good to review all of our state’s tax preferences to ensure the best outcome. But the next time you hear someone say, “close tax loopholes,” remember that may be the loss of your neighbor’s job, your job, or create a greater burden on families who cannot afford higher taxes.
Editor’s note: Rep. Terry Nealey, R-Dayton, represents the 16th Legislative District and is ranking Republican on the House Finance Committee.