Well, this is timely. The state citizen commission on tax breaks—yes, such a commission exists—issued its recommendations late last week on 25 "tax preferences." One of their recommendations: Reassess the wisdom of the controversial $176.2 million tax break to banks. This is the very same loophole that lefty activists have pushed to center stage as an example of one tax break that could be closed among many as an alternative approach to cutting basic programs. (Gov. Chris Gregoire came out last week with $2 billion in recommended cuts as her solution to the $2 billion budget crisis.)[pullquote]If the deduction was removed, it wouldn't hurt borrowers—as critics of ending the loophole have contended—but that the lender "would bear the full burden."[/pullquote]
The commission—the Citizen Commission for Performance Measurement of Tax Preferences—just reviewed the latest report of the Joint Legislative Audit & Review Committee (JLARC), a special bipartisan committee in Olympia created in 2006 to assess tax breaks. JLARC issued its draft report in July, handing it over to the citizen commission for review.
The citizen commission, which took public testimony in September, seconded most of what the JLARC said: Kill a $40 million tax break for renewable energy equipment (sigh); continue a $13.7 million sales tax exemption on boat sales to foreign residents; and continue a $5 million use tax exemption for vendors at trade shows.
As for the controversial bank exemption—a B&O exemption for banks on interest earned off first-time mortgage loans—the citizen commission seconded the JLARC's recommendation to "review and clarify because it is unclear whether the original public policy objective applies, given changes in the lending industry and the rise in the secondary mortgage market." The initial intent, according to the JLARC assessment, was to encourage first time homebuyers to purchase homes.
Here's what else the JLARC report said: “There is no evidence that continuation of the tax preference will contribute to the implied public policy objective of making residential loans available to Washington home buyers at lower cost.”
And what did the citizen commission say specifically in its concurrence? They reasoned that if the deduction was removed, it wouldn't hurt borrowers—as critics of ending the loophole have contended—but that the lender "would bear the full burden." They also note that the national scope of the market would prevent banks from passing new costs on to borrowers. However, on the flip side—in a plug for the deduction—they say they received testimony arguing that eliminating the loophole could hurt local banks.
This is the fifth batch of tax preferences the JLARC has examined since 2006 (the current batch of 25 brings the total to 120 exemptions of the 567 on the books.) The four previous reports—taking up 95 exemptions in all—recommended terminating five tax breaks overall worth about $81 million. However, the legislature has never taken action on those.
They have let $5.6 million worth of exemptions, including a $1.1 million preference for beef processors and a $2.3 million preference for patient lifting devices, expire as recommended by the JLARC over the past five years.
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