WashACE Blog

Freshman Dems propose tax increases on home buyers

Brad Shannon reports this morning on new taxes proposed by freshman Democrats in the House:

Freshmen Democrats in the House introduced a bill that targets favorable tax treatment for large home lenders and out-of-state shoppers. They say it would raise $170 million for K-3 programs in public schools....

...HB 2078 specifically targets first-mortgage interest earnings of banks that exceed $100 million a year and would end tax breaks for out-of-state shoppers. It would raise more than $80 million a year from each tax.

Missing in this representation of the mortgage interest earnings exemption, in particular, is that if the tax exemptions mortgage lenders now enjoy in Washington were eliminated, banks would pass the tax on through to home buyers.

Result: Home purchases become more expensive and Washington's current housing market, which is struggling mightily to recover, takes another hit.

The continuing hew and cry for "closing tax loopholes" is misleading many into believing there is some quick revenue fix for balancing the state budget. But budget challenges in Olympia have been for some time and continue to be due to legislative over-commitment of state taxpayers to unsustainably high spending.  

Richard Davis's blog on the Washington Research Council's tax loopholes paper and  a subsequent Crosscut column explain the role and complexities of tax exemptions in Washington's tax system. 

The News Tribune calls "'Loophole repeal: An imaginary budget solution," saying 

the “loopholes” targeted by the protestors tend to fall into two categories: Expendable but piddly, and potentially lucrative but also justified.

Not everyone in the political environment currently surrounding the budget debate is interested in fully understanding the why's and wherefore's  -- as they say, "you don't want to wreck a good story with the facts!" -- but the information on tax exemptions is available. 

WRC discusses tax preferences with Robert Mak

The Washington Research Council's Kriss Sjoblom appeared on Up Front with Robert Mak on Sunday to discuss Washington's tax preferences and explain their purpose and complexities.

Here is a link to the program. The tax preferences segment begins 9 minutes in to the 20-minute program, following a discussion with the Pierce County Assessor. 

In response to questions from Mak and assertions from Mak's other guest, Adam Glickman-Flora of SEIU Healthcare 775 NW, Kriss explained the importance of tax certainty to business and the complexity of the tax exemptions in question, and pointed out that there is a system in place for reviewing all of the state's tax preferences on a ten year cycle.

He refuted Glickman-Flora's assertion that business doesn't pay its fair share, saying that business pays more than 50 percent of Washington's taxes, giving it a high ranking compared with other states across the country. The Council on State Taxation compares the 50 states in this report:  Download COST-State Business Tax Study.

News Tribune gets it right on workers' comp

The News Tribune nails it in its editorial on workers' comp. It says:

Year after year, Washington’s workers’ compensation system has lurched closer to financial collapse – even as the payroll taxes that fund it have escalated relentlessly. Year after year, the Legislature has done nothing about it.

It explains the voluntary settlement provision that labor finds so deplorable:

This proposal came from a Democratic governor, Chris Gregoire, and is supported by Lisa Brown, the Senate’s Democratic majority leader. Forty-four other states, blue and red, already offer the lump sum option; Washington is an outlier in denying workers a choice on the matter.

Pragmatic Democrats have joined Republicans and business leaders in supporting this measure for an excellent reason: It promises to help contain the costs of a system that has long been on an unsustainable trajectory.

And it concludes correctly that:

The House should let its members vote on the measure.

If you haven't already, call your representatives today and tell them it's time to move on workers' compensation reform. It's time to demand a vote on SSB 5566. 

 

Coming up next -- legislative townhalls tomorrow in districts around State

Now that we've past the first legislative cut-off, the pace in Olympia promises to quicken.

Lawmakers will be in their districts tomorrow conducting townhall meetings. Labor is mobilizing its supporters to turn out at these events. They want to kill workers comp reform and to increase business taxes in order to continue the unsustainable spending practices that have gotten us into this mess. Here are labor's talking points. 

Business owners need to turn out for these meetings, too.

Tell you legislators that higher taxes and employer costs work against economic recovery and job creation.

Here's the  Legislative Townhall Schedule as it stands currently (we will update it, as we confirm additional meetings). Please try to attend to one in your area tomorrow.

Tell your legislators that higher taxes are NOT the answer.

Tell them that we don't need more studies on workers' comp, we need action now in the House to allow injured workers to settle their claims and get back to work. Explain to them that sensible reforms, which are already working to save money in 44 other states, passed out of the Senate with strong bi-partisan support and the support of the Governor's office. Tell your representatives to get behind SSB 5566 and work to adopt it in the House, too, and send it to the Governor's desk for signature. 

Supplemental budget deal struck

Lawmakers have reached agreement on how to fill more than half of the $550 million budget hole for the remainder of this biennium. The Seattle Times reports this morning that:

The agreement trims several state programs, including the state's health-care program for the poor and aid for the disabled, as well as transfers funds from other programs. The plan cuts the deficit by about $370 million, with about $242 million in cuts and $125 million in transfers.

 According to Brad Shannon, in Tacoma News Tribune, 

The agreement would leave about $200 million of the deficit unsolved. But Chopp and others have said it will be bridged by a one-day delay of per-pupil funding for public schools – until July 1. That delay would be part of a two-year budget to be approved in April.

And Jerry Cornfield blogged on the addition to the negotiating process of House and Senate moderates, which may have contributed to the agreement.

Tax exemptions stimulate investment, job creation

Richard Davis blogs on news from Stateline.org that some governors are pushing for big tax cuts for business. Davis says, "Governors from New York to Florida, Idaho to New Jersey, have turned thumbs down on new taxes, while looking hard for ways to make their states more attractive to corporations ready to expand."

Greens priority would cost Lewis County 300 jobs

State revenues are slow, but environmentalists and healthcare advocates with their legislative partners, still want to tax more, layoff workers, increase energy prices, and jeopardize the rural economy of Lewis County area.

Katie Schmidt posted on the TNT political blog that a bill sponsored by Senator Phil Rockefeller (D, Bainbridge Island) would phase out TransAlta’s coal-fired plant in Lewis County by 2020. 

Environmental groups and healthcare workers said coal-fired electricity is too harmful to go on...

Workers at TransAlta and residents of Lewis County, though, pointed out that the plant provides about 300 well-paying jobs in an area plagued by unemployment...

TransAlta USA president, Lou Florence, said the plant pays an average salary of about $88,000 per year. According to the Office of Financial Management, the median household income in Lewis County is about $42,000 per year.

This is one of the environmental community’s top four objectives for this legislative session. 

Am I missing something?

More on UI Bill Status

Erik Smith reports that six Democrats peeled off yesterday to vote with Republicans on time-critical UI legislation. SSB 5135 would provide employers about $300 million in temporary relief from a scheduled 36 percent increase in UI rates...$300 million that could then be spent putting workers back to work.

It was a major blow for Senate Majority Leader Lisa Brown, D-Spokane, who attempted to exhort her own members with a line that brought chuckles from across the chamber:  “We should not be playing politics,” she said.

Brad Shannon also reports in the Olympian:

Triggering today's fight was Senate Democrats’ move in committee to drop an element of the bill – the extension of federally funded unemployment benefits for those who have exhausted their first 26 weeks of benefits. The state is paying extended benefits to more than 28,000 claimants at this time.

Minority Republicans support the extension, and Senate Democratic Leader Lisa Brown said her caucus is committed to taking up the benefits extension later when the Democrats address other UI issues.

But Republicans weren't having it. They believed Brown's move was a ploy letting the majority party later combine the popular benefits extension with proposals that labor wants and business does not. These include a proposal to take extra money from the state UI fund to pay for additional worker retraining and also to increase UI benefits for jobless families that have child dependents.

And so it goes. Some expect action today; others say Friday. Stay tuned. 

 

UI bill stalled in Senate yesterday

The Spokesman Review reports this morning that an anticipated vote on temporary unemployment insurance relief was delayed yesterday in the Senate. SSB 5135 now caps the social tax for just one year (2011), deferring debate on long-term tax and benefit changes.

Without legislative action, UI taxes will increase this year by 36 percent on average; and this after a job-killing 62 percent average hike in 2010. 

The Seattle Times reported Tuesday that both houses of the legislature need to act and the governor needs to sign their action into law by next Tuesday, Feb 8, in order to avoid another round of sharp tax increases on business.

As AWB President said in a recent column, "A paycheck always beats an unemployment check." Call your legislators today, if you haven't already, and let them know how important their speedy support is on this issue. 

Are tax incentives in play?

We've written here before about efforts to repeal tax incentives/exemptions/loopholes/breaks/whatever in order to find more money in this cash-straitened legislative session. In my column in the Puget Sound Business Journal Friday, I challenge the assumption that there's a lot of free money laying around.

Still, the myth persists. In the last 48 hours two Seattle Times business columnists lend their voices to the chorus claiming business incentives are depriving the state of funds necessary to maintain "the commons." Brier Dudley, the Times' technology writer, takes on the research and development credit.

Starting in 1994, the state offered to defer sales taxes on investments in research and development activities. Companies were supposed to eventually pay the taxes. But then the law was changed so they don't ever have to pay, as long as the investments continue to be used for R&D. That means, though the policy is still called a deferral, it's basically an exemption.

Microsoft used this program to defer $34 million worth of sales taxes in 2009. To put that in perspective, the company paid $1.9 billion toward income taxes in the past three months. During that same quarter, Microsoft had sales of $19.95 billion and net profit of $6.6 billion. It spent $2.1 billion on R&D in the quarter, when its overall tax rate was 22 percent, down from 25 percent the year before.

Seriously. Does he believe the state, an innovation economy leader, would not suffer a significant - potentially fatal - loss if the credit were repealed. Many of us are looking to the tech sector to lead the regional recovery? The R&D incentive is common in other states with vibrant technology sectors. Call it what you will, it's essentially just good tax policy.

Jon Talton used his Sunday column to argue, unremarkably, that corporations don't pay enough taxes. Here's his conclusion.

The argument for now has been won by those who say corporations have no social obligation but exist only to make maximum profits for shareholders. That seemed acceptable in better times, even as the political power of major corporations increased. Now, as high unemployment continues, poverty rises and the civilization Americans of a certain age once took for granted are at risk, it seems less convincing.

Completing the Times' tax trifecta was this op-ed by Aubrey Davis, arguing for an April referendum on exemption repeal to save the Basic Health Plan. Here's the strategy and campaign theme.

Here's why — and how — it could work. First, a referendum requires only a simple legislative majority to be put on the ballot. Second, the BHP is currently funded until this May; an April vote would be both feasible and timely. Third, it gives citizens a clear choice about public priorities: spend money on tax breaks, or to ensure our lowest-paid people can live healthy and productive lives?

Those of us who believe private sector investment will spur the economic recovery and job creation should be prepared to defend those incentives that maintain and enhance our competitive position. The facts are on our side, but there will be a strong appeal to emotion that we must be willing and able to counter effectively.

A Personal Note Beginning tomorrow I am rejoining the Washington Research Council staff as full-time president. That means I'll no longer be acting as WashACE coordinator and primary blogger here. Please stay tuned to this site. WashACE continues with new writers and coordination. And, please join me and the WRC staff in our conversations on the Research Council blog.