Do you believe the state Legislature can find $750 million to help fill a $2.6 billion budget hole without raising the sales tax, the property tax or the business and occupation tax?
If you do, you might also believe in the Tax Loophole Fairy.
The Tax Loophole Fairy is a mythical creature who can solve budget problems with the wave of a wand that looks like a sharp pencil. As if by magic, hundreds of tax loopholes are eliminated and fairness once again rules the land.
What types of loopholes? Why, the loopholes that benefit the rich, of course – like one that exempts the sale of gold bullion and another that exempts private airplanes from property taxes.
How about bottled water? Or candy? Or doughnuts? All are exempt from the sales tax, and all have been nominated for closure, though none raises anywhere near the three-quarters of a billion bucks Gov. Chris Gregoire wants in new money.
Loopholes are legion. State studies show that 580 loopholes exempt more of the economy from taxation – 60 percent – than we tax. Loopholes – “incentives” if you benefit from them – range from groceries to churches to government property to improvements to historic buildings. If you bought this newspaper, you didn’t pay sales tax.
Every few years lawmakers create new ones to help some troubled industry, boost some emerging industry or create jobs. For example, most of the breaks recently have gone to high-tech, aerospace, biotech and green energy. All remain popular and have very powerful forces behind them.
Still, Gregoire believes in the Tax Loophole Fairy (from now on to be referred to as the TLF). While she wants the money to reduce the budget cuts needed to fill a $2.6 billion budget hole, she hasn’t suggested exactly how. Some might come from President Barack Obama’s second round of federal stimulus money. She opposes property or B&O tax hikes, but encourages lawmakers to launch a loophole crusade.
House Speaker Frank Chopp knows a sales tax hike would be politically unpopular, so he’s a TLF believer too. All exemptions will be tested by this question: “Is this tax exemption more important than money for schools or health care for kids or creating jobs?” The answer for at least one would be no, he said – private airplanes.
Like most legends, this one is especially prevalent among the young who have yet to have their dreams crushed by the harsh truths of hardball politics. But once a legislator has been around awhile, he or she slowly begins to have doubts. Each session begins with talk of a war on loopholes, yet each session ends with nary a loophole slain.
In 2006, at the governor’s urging, the Legislature created a special commission to recommend which loopholes shall die and which shall live.
The first target was an exemption for beef producers hurt by the mad cow scare of 2003.
Just as it was about to die, however, House Democratic leaders swooped in to rescue it – partly to boost the political odds of a beef country legislator. Only the embarrassment of trying to maintain the break long after the cows cheered up killed it for good.
Since then, the group has reviewed 74 loopholes and recommended that 20 be reviewed or clarified and three be killed. Lawmakers have not taken any of the recommended actions. Only one – the newspaper sales tax exemption – is targeted for review this session.
Former Gov. Mike Lowry took on one of the biggest loopholes around – the exemption from sales taxes for services, such as legal, accounting and haircuts. Each industry summoned lobbyists who marched on Olympia. Lowry was foiled.
The history has made a TLF agnostic out of Senate Majority Leader Lisa Brown.
“It’s not clear to me that that adds up to the solution,” she said.
Either the fairy doesn’t exist or her powers are no match for evil Prince Tax Loophole and his brave protector-lobbyists.
So who will save the budget? Good thing they all still believe in Obama Claus.
Peter Callaghan: 253-597-8657
peter.callaghan@thenewstribune.com
blog.thenewstribune.com/politics
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