Tax breaks instrumental in state budget deal

$13 million in aid to businesses helps to grease final vote

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OLYMPIA — Something interesting happened when lawmakers finally scraped together enough money to plug a large budget shortfall and increase funding for education — they also gave businesses millions in tax breaks.

Republican and Democratic lawmakers, as part of the budget deal, approved 16 tax breaks worth roughly $13 million. They would benefit restaurants, mint farms, nonprofit gun clubs, beekeepers, and international investment firms, among others.

In the context of a $33.6 billion, two-year operating budget, this is what government number crunchers often call "budget dust," as in almost too small to notice.

But legislators have bogged down over smaller amounts, and Democrats pushed unsuccessfully this session to close many tax breaks to raise more money.

House Appropriations Chairman Ross Hunter, D-Medina, said he's not a fan of creating tax breaks, including the ones in the new budget.

"I am a fan of coming to closure on the budget and coming to agreement with Republicans who control the Senate," Hunter said.

Specifically, Hunter said, the tax exemptions were needed for Senate Republicans to agree to end a tax break for residential phone service that's expected to net about $85 million over the next two years. Closing the exemption was a key hurdle to reach a broader budget agreement.

Senate Ways and Means Chairman Andy Hill, R-Redmond, agreed it was part of the broader budget deal, but said there was no direct tie to ending the tax break for phone service.

Hill said exemptions are sometimes needed to level the playing field for business or to protect industries and boost growth.

In addition to ending the tax break for phone service, Democrats also got an agreement to set expiration dates on tax breaks, and to disclose the value of future exemptions, said Rep. Reuven Carlyle, D-Seattle, chairman of the House Finance Committee.

"The only way we were able to get the bill through (the Democratically controlled House) was because of that," Carlyle said.

Large majorities

The House and Senate approved the operating budget Friday with large majorities and adjourned on Saturday. The tax breaks are contained in a separate measure, Senate Bill 5882, which also cleared both chambers with large majorities.

Senate Democratic Leader Ed Murray, D-Seattle, said tax breaks can serve a useful purpose. He sponsored one dealing with cover charges for dance bands and signed on to others approved Friday, including the break for international investment firms.

The state currently levies a tax on businesses that offer attendees the "opportunity" to dance. Cover charges and tickets for movies, plays and concerts are exempt from that tax.

The dance tax has been applied inconsistently by the state, said Murray, who is running for mayor of Seattle. "The nightlife dance industry is fairly big in my district," he said.

Murray said there are "tax loopholes we absolutely need to close, but there are tax incentives that I think are valid. (In the past) we closed the tax loopholes for banks, but we gave one to newspapers and the dairy industry … Not every tax break is necessarily bad."

Newspapers benefit from a reduction in state business-and-occupation taxes passed in 2009.

Hill said it's been his experience that some lawmakers critical of tax breaks "are more than happy to trash them until they have a business that's hurting" in their district.