Tax Preferences Help State’s Economy and Families

In the upcoming special legislative session in Olym- pia in May, lawmakers will be seeking agreement on a two-year state operating budget. Frequently, as bud- get 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 Wash- ington provides tax prefer- ences is to attract and retain businesses and jobs. Wash- ington 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 rev- enue is generated through sales taxes, business and oc- cupation taxes (B&O), and property taxes. The B&O tax is based on gross receipts, not net income, regardless of whether or not that busi- ness 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 prefer- ences 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, pub- lic 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 Legis- lature created an extensive review process in 2006, to en- sure 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 Re- view 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 consider- able time this session in the House Finance Committee considering JLARC's recom- mendations. Bills advanced would extend expiring tax preferences for beekeep- ers, 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 prefer- ences have received a green light from JLARC for termi- nation. My Republican col- leagues and I are concerned tax increases could hurt our fragile economy and create further job losses. We should also remember state govern- ment 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 loop- holes," 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 Com- mittee.