As the Legislature contemplates how to deal with a multibillion-dollar budget shortfall, one of the more common phrases heard around the Capitol is “closing tax loopholes.” While this may seem admirable on the surface, a closer look reveals a complex economic system that can’t be oversimplified by catchy special interest sound bites.
For most, the term “loophole” conjures up images of shady characters in smoke-filled back rooms scheming for ways to buck the system. But here in Washington state, we don’t have “tax loopholes”; we have tax incentives.
Why is this clarification important? Because these tax incentives have been enacted via very deliberate legislative action.
In order to be passed into law, a tax incentive must be subjected to a public hearing, amendment, a majority vote of committee members, and then subjected again to amendment and a 50-vote requirement to pass from the House floor. It then has to go through the same rigorous process in the Senate (with a 25-person vote requirement). If it passes both the House and Senate, it still must be signed into law by the governor. Often, these proposals receive far more than the 50 and 25 votes needed. So, it is a rigorous and difficult task for a bill to be passed and enacted.
Furthermore, this process is done publicly with bill hearings announced in advance and testimony taken in public meetings. Anyone can now access any hearing via TVW webcast. There is no hiding. And lobbyists for the groups who are now calling for the repeal of these policies had every opportunity to testify against the proposals. Did they? Weren’t the bills still passed — and these incentives enacted — because of their benefit to our economy?
The fact is these incentives have been beneficial to workers, employers and communities throughout the state. Thousands of jobs with high wages and benefits have been created and many jobs in manufacturing have been saved. They worked because a lower tax rate brought businesses to Washington that would not have come otherwise.
Which would you choose, a tax rate of 0.5 percent on $10 million or a 1.5 percent rate applied to zero dollars? I choose the 0.5 percent rate as it creates jobs and generates revenue. The higher rate does not because many of those economic activities would gravitate toward more competitive states. That means the lower rate has actually protected or enhanced the funding for many of the programs that special interest groups are now trying to protect. Repeal of these incentives would leave employers with little option but to lay off more workers. Can we really afford that? Our efforts should be to create jobs, not destroy them.
Breaks scrutinized
Over the past few years, true loopholes have been examined and eliminated. The improper use of reseller certificates to get building materials tax-free for personal use, and tax avoidance have both been thoughtfully — and rightfully — repealed.
Proposals to end our current tax incentives are by definition tax increases. Voters clearly said “No!” to that last fall, and with good reason. Any tax increase would lead to job losses in our state and further delay the rehiring of workers by any employer affected by such a tax increase.
A repeal of these incentives would further hamper our economy’s recovery and devastate our state and household budgets. We need to get past the misleading rhetoric of impropriety and look for better ways to get our budget balanced and to get Washington working again.
State Rep. Ed Orcutt, R-Kalama, is chair of the Washington State Economic and Revenue Forecast Council and assistant ranking Republican on the House Ways and Means Committee.
