Legislative tax-loophole addicts fall off the wagon, again

Staff WriterJuly 9, 2013 

"I’m Washington state. And I’m a loophole–aholic.”

And so begins another round of post-session soul searching by a state addicted to tax loopholes.

It knows it has a problem; it has admitted it is powerless; it has repeatedly turned itself over to a higher power. Nearly every session, it makes lists — not of those it has harmed, you know, like regular taxpayers, but of those it has benefited. Because of 600-plus exemptions and loopholes, Washington state exempts more of the economy from taxation than it actually taxes.

It pledges not only to stop feeding its addiction but to make amends by repealing some of the hundreds of loopholes created during past binges. Then, when it falls off the wagon yet again, it is wracked with guilt and self-loathing.

It turns out that the higher power it turned itself over to is the Olympia business lobby.

This past session was no different. Seattle Democratic Rep. Reuven Carlyle took on the role of the Carrie Nation of Tax Loopholes, waving his virtual hatchet at the state’s tax code.

“It’s a new era,” he said, as though he believed it. Ending preferential tax treatment for travel agents and insurance agents, for janitorial services and on the sale of bottled water would raise money for school kids.

In support, Gov. Jay Inslee said: “Educating our children is more important than preserving tax breaks.”

Maybe not. The only loopholes closed this year were two opened by the state Supreme Court after legal challenges. Not wanting to share the glory of creating tax breaks with another branch of government, the Legislature reclosed loopholes on cellphone service and large estates.

If that was all the Legislature had done, Washington would have been able to look itself in the mirror the next morning with pride and not regret. Instead, it looks at itself through blurry, bloodshot eyes wondering where it left its wallet and how it ended up with that tattoo.

Rather than close any of the loopholes it created, the Legislature opened 16 new ones. Sales of solar energy equipment got a break, as did the installation of custom interiors in large jets. Businesses’ internal payroll preparation needed a break, as did the purchase of propane used in mint oil production and, of course, the sale of clay pigeons to nonprofit gun clubs.

Perhaps the best illustration of the psychological grip loopholes have over the body (politic) comes from those wholesome folks at Darigold. The state’s largest private company is thinking about getting into the baby formula business with a partner but only if the new product is exempted from state’s business and occupation tax.

It’s about jobs, see. And it doesn’t really cost the state anything because it isn’t collecting the tax now, because the plant doesn’t exist. Without the tax break, the plant would be built in another state — if, in fact, it is built at all. Either way, Washington gets zero revenue.

Like most new tax loopholes, this one didn’t have a natural enemy since no one wanted to be labeled anti-jobs or anti-baby. As it was, there was no entity to argue against it because regular taxpayers don’t have lobbyists; they have only legislators.

Democrats have been the top loophole hunters the last several sessions, citing them as a way to increase revenue for state government and education without raising general taxes and opening themselves up to campaign attacks. But this exemption was sponsored by a Democrat, and even Carrie Nation — I mean Reuven Carlyle — took a sip because, well, everyone else was, and it was part of the final go-home deal.

Part of that deal was another Democrat-sponsored loophole — exempting cover charges at dance clubs from the sales tax – all part of Sen. Ed Murray’s campaign to be mayor of Seattle.

At least that one has a certain symmetry. Because after you fall off the wagon, who doesn’t want to dance?

Peter Callaghan: 253-597-8657
peter.callaghan@thenewstribune.com
blog.thenewstribune.com/politics
@CallaghanPeter

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