Rick Anderson does a yeoman's job in The Seattle Weekly with this piece on the stunning largesse dispensed by the state legislature via business tax breaks and exemptions. He's outraged, but in a reasonable manner. Of the $64 billion per biennium that's lost (oops, "invested" in economic growth and jobs creation), he highlights just $13 billion in suspended retail and use taxes that are most deserving of collection.

Writes Anderson:

...the certainty of not paying some taxes—sales, property, business, and other levies—is legally guaranteed for an ever-growing, record number of Washington recipients, most of them businesses and corporations. It's kind of a dirty secret, a fact not heard over the caterwauling about Washington's supposedly regressive and unfair business-tax structure.

...an enticing chunk—$13 billion, mostly from suspended retail and use taxes—could be recouped if those exemptions were repealed and the revenue was dedicated to help pay public costs, according to a new state study. Repeal could be Washington's own Dreamliner: fully funded police, fire, education, and health services. Or, to dream more wildly, paying for that Alaskan Way tunnel on Seattle's waterfront and a citywide monorail, building new state highways, establishing more parks, providing more low-income housing, and creating thousands of jobs along the way. (Gov. Gary) Locke could brag he performed these miracles without raising taxes—merely by using existing ones.

The $3.2 billion tax incentive package approved to keep production of Boeing's new 7E7 Dreamliner commercial jet in Washington has raised many hackles, but not mine. There's quite a bit that's distasteful about the deal but politically, no governor and legislature could afford to let the project get away from what is still Boeing's "home state" for airliner assembly. However, as Anderson's article suggests, there should be some discrimination in Olympia. Now, every Tom, Dick and Harry with a lobbyist is getting theirs.

There is no compelling evidence most tax breaks in Washington State create much in the way of jobs. That's particularly true for high-tech and bio-tech business tax breaks, according to state sources cited in a strong Seattle Times story by David Postman last year. There's this nugget about two particular high-tech tax breaks:

"We can't prove they work," said Mary Welsh, the Department of Revenue's assistant director in charge of research. "That doesn't mean they're not working. We just can't find any evidence they are."

Such uncertainty isn't limited to high-tech and bio-tech tax breaks in our state, as Postman reported.

It's been equally difficult to judge other tax programs.

A 2000 study by the House Finance Committee was unable to determine whether a tax break to boost manufacturing had any effect on job creation.

And in 1996, the Department of Revenue found that a series of tax incentives designed to boost the state's rural economy created only one-quarter of the jobs projected.

Around the country similar programs have brought similar results, according to a national expert on state taxes.

"There is a belief that they work, that they actually stimulate economic development and they stimulate job growth and they keep companies from moving away or they lure companies in," said David Brunori. He is a contributing editor to State Tax Notes, a newsletter on state tax issues, and teaches tax law at George Washington University Law School in Washington, D.C.

"There is virtually no evidence that that is the case."

Bottom line: government tax incentives and government spending both deserve far better scrutiny. Don't make fiscal policy based on the "benefit of the doubt." Really empower the auditors and fiscal analysts, and turn 'em loose.

Posted by Matt Rosenberg at February 20, 2004 06:53 AM

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