This Washington

Gov. Inslee Proposes Closing Half a Billion Dollars in Tax Breaks

THIS POST HAS BEEN UPDATED WITH THE REPUBLICAN RESPONSE. Gov. Inslee puts 11 tax preferences on the chopping block.

By Josh Feit March 28, 2013

In an attempt to help fully fund K-12 eduction—which he called a "moral commitment"—while also closing the $1.3 billion budget shortfall for the 2013-15 biennium, Gov. Jay Inslee proposed closing $565 million in tax preferences today.

"I challenge anyone to argue that any one of these tax breaks is more important than any one of these children," he said, flanked by a group of students from Cleveland high school.

Inslee's list, the newsmaking footonote to the $34.4 billion dollar budget proposal he unveiled today, includes everything from A) ending a sales tax break for land line telephones, saving $83 million over the upcoming biennium (cell phone companies have successfully sued over the long-standing old school exemption, which has put an $800 million dollar reimbursement bill in the state's in-box) to B) ending the sales tax exemption for out-of-state shoppers, worth about $63.7 million, which the house finance committee recently eviscerated because there was no convincing data that saving it saves many jobs.  

Inslee's plan represents the culmination of something lefties have been pushing for in Occupy-era sound bites for a couple of years now.

It also represents a formal sea change about the reality of scrutinizing tax breaks. With the recent state Supreme Court ruling that the two-thirds requirement to raise taxes (which includes closing tax breaks) is unconstitutional—coupled with the high-dollar demands on the budget (the court's K-12 mandate, for example, is estimated to cost $1.4 billion over the next biennium)—eliminating tax breaks has become unavoidable in Olympia. (At least according to Democrats. In a press conference after Inslee's announcment, Republican senate leader Sen. Mark Schoesler, R-9, Ritzville, promised that the senate budget would not include new revenues from killing tax breaks or otherwise.)

And while former Gov. Chris Gregoire had started including revenue from closing loopholes in her recession-era budget proposals, her proposals came with the bolded footnote that the legislature needed a two-thirds vote to close each one. They also came with Gregoire's own skepticism about how much money closing tax exemptions would actually bring in.

Inslee, who is also proposing extending temporary taxes on beer and professional services (valued together at $661 million), that were set to expire, says he is putting the $1.2 billion in new revenue toward K-12 education. "My number one priority is to rebuild our economy," Inslee said, "and that begins with education."

He added: "Today, I choose education over tax breaks. When we give these tax breaks a hard look, they just don't measure up to our urgent need to better fund education."

Despite the seeming inevitability of putting tax breaks on the chopping block, though, it's not a sure thing. There will be strong pushback from those who benefit from the targeted breaks.

In addition to closing the $83 million landline exemption and the $63.7 million out-of-state sales tax exemption, Inslee, who said "I know it won't be easy, but it's the right thing to do," would close:

•a $94.8 million break on car trade-ins

•a $78.5 million break for custom-made software

•a $51.5 million break on bottled water

•a $40.8 million break for oil companies

•a $29 million break for resellers of prescription drugs

•a $27.8 million break on long-term rentals

•a $24.1 million break on imports

•a $55.6 million break on farm auction purchases

Inslee is also proposing an across-the-board 25 percent hit on tailored B&O rates in the tax code for different industries. The reform would not apply to Boeing, though, which is a recipient of a "classified" rate—as the special rates are known. This reform is worth $66.2 million.

In his repsponse, Sen. Schoesler, the Republican leader, focused on Inslee's proposal to scrap the used car trade-in exemption as an idea that would kill jobs; he said businesses count on the break to trade-in trucks. (Liberals cheered Inslee's proposal to go after the trade-in tax break because they liked that it exempted lower value trade-ins—up to $10,000—saying it showed an inclination toward progressive taxation.)

Sen. Schoesler also disputed Inslee's "choice" between tax breaks and kids. Schoesler said Inslee's proposal was "not a choice between kids and tax breaks, but between tax hikes and bureaucrats." Schoesler was referring to $800 million in increased funding for state employee compensation, maintaining that the state could fund basic education without new revenue and that Inslee was simply raising taxes to cover state employee benefits.

Previewing the GOP alternative budget, which he said would come "soon" [it sounded like next week], Sen. Schoesler said: "He's going to showcase tax hikes. We're not."


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