Gregoire's Guts

Does she have enough to end Washington's corporate giveaways?

In announcing $2 billion in budget cuts recently, cuts that will wipe out health insurance and medical services for more than 55,000 of Washington's poorest, Gov. Chris Gregoire weirdly said she has "not thought about revenue" to shore up those programs. What's more, she admitted she hasn't even considered the one foolproof way the Gov could earn back the money: hacking away at the state's generous corporate tax exemptions. 

As we first reported in 2004, when the state allowed 503 tax breaks worth $64 billion, and as we followed up last year when those numbers had increased to 567 and $98.5 billion, most of this money is untouchable as revenue—many of the breaks are properly granted, such as the pass given to governments, schools, hospitals, and churches from paying real-estate taxes.

But there is almost $15 billion that could be turned into revenue, should Olympia get tired of taking it out on the poor.

According to the state Department of Revenue, almost $14.8 billion in tax exemptions "represent potential revenue" if the governor and legislature chose to repeal them. The state doesn't identify who specifically gets how much in official Washington tax breaks, cloaking the handouts in generic business terms. But it's not hard to figure out. Take this potential revenue generator we wrote about last year: "A certain 'manufacturer of commercial airplanes,' for example, gets a $150 million tax break every two years under one of the exemptions. Another $45 million is granted for 'Airplane pre-production costs.' "

Here's a hint: It's Boeing. And other Olympia incentives given to the Lazy B and the aerospace industry in general will ultimately save the company an estimated $1 billion more over the coming years. (Coincidentally, we assume, Boeing reported a $1.1 billion third-quarter profit last week.)

Deferral of state and local retail sales and use taxes are also allowed for the construction of buildings for "high-tech" projects involving research and development. That generic exemption has Microsoft and its ever-expanding campus written all over it, allowing the 'Soft to avoid sales tax on construction costs, materials, and new equipment. (Microsoft also reported its quarterly profits last week: $5.74 billion).

Another 500 small and large companies also benefit from the break, says the state. The exemption was created in 1994 and extended in 2004 for another 10 years.

Almost 1,700 high-tech firms also share another $50 million in B&O tax credits for research and development under an exemption that was also renewed in 2004 for another decade. And a $12 million property-tax break goes to companies that use custom computer software.

Health-maintenance organizations such as Group Health, along with the major health-care insurers, are exempt from paying almost $300 million every two years in B&O tax on insurance premiums, under a break dating back to 1993. They also don't pay $40 million every two years on Medicare premium taxes that could have gone to the state.

The revenue department's exemption list indicates that most every living soul directly or indirectly benefits from legislated exemptions. About 4,800 insurance agents collectively avoid paying $40 million in B&O taxes on their commissions each biennium. About 450 travel agents and tour operators don't pay $16 million in B&O taxes. When any of us buy prescription drugs, we collectively avoid paying $613 million in sales taxes that have been exempted. It's an exhausting, all-inclusive club.

The revenue-producing (effectively, tax-raising) options include a longtime small-boat owners' excise-tax exemption that could produce $4 million. Lawmakers also could ding out-of-staters who buy boats here and aren't charged retail sales tax—that's a biennial $10 million exemption. As well, there's $12 million sitting there from a 2006 B&O exemption given the carbonated-beverage-syrup industry.

And farmers get a bounty of longtime exemptions—more than $200 million in farm-product tax breaks alone. There's also an $89 million break on the feed and seed they buy, and $88 million on fertilizer and chemical-spray purchases. More than $13 million in taxes are not paid on new parts for their tractors and other machinery.

And so on. "The exemptions are a perpetual-motion machine," Greg Devereux, the state employees federation executive director told us, siphoning off more would-be revenue with each new session, "and no one's willing to step in front of it."

Now? Will you, governor, at least freakin' think about it?

 
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