State Reps. Glenn Anderson, R-Fall City, and Reuven Carlyle, D-Seattle. 


By Krista Norsworthy

Staff writer/ Washington State Wire

OLYMPIA, Feb. 3.—State Reps. Reuven Carlyle and Glenn Anderson are pushing a bill that would give 251 business tax exemptions five to 13 years to live, a blunt-ax approach to the tax-loophole debate that is more aggressive than anything the Legislature has yet tried.

            They’re a bipartisan duo – Carlyle is a Democrat from north Seattle, while Anderson is a Republican from Fall City, in the East King County suburbs. Neither is the sort to join in the close-tax-loopholes battle cry that has rallied the union troops and the activists since the recession began. But they say the special tax rates and exemptions the state grants to business could use a more aggressive review process, and their bill would certainly force it. Under House Bill 2762, the $2 billion a year the state wipes off the books for business would expire, tax break by tax break, between 2017 and 2025.

            Meanwhile, the tax breaks would continue to undergo reviews by a pair of state-government panels, a process that started in 2007.

            But the big difference is this. The way things work now, if the Legislature wishes to end a tax break, it must repeal it – always a process that brings opposition and strong argument from those that benefit. Under the Carlyle and Anderson proposal, if the Legislature wants to continue a tax break, it would have to reaffirm it by taking another vote. Meaning the political burden would shift to those who wish for the tax break to continue.

            The two outlined their proposal at a news conference Friday.

            Swiss Cheese           

            “Our tax structure looks like Swiss cheese,” complained Anderson, a maverick Republican who has urged tax reform in the Legislature during his 12 years in the state House and often finds himself a minority of one.

            Anderson, who is running for lieutenant governor this year, echoed the familiar complaint that the state seldom looks back to determine whether the tax breaks it has granted in the past are achieving their original goals. “We never go back and find out,” he said. “It just continues in perpetuity.”

            Said Carlyle, “We in the Legislature rarely hold a hearing on whether or not a tax exemption or credit actually works. Whether or not we’re getting value for the public. And whether or not there is a return on the investment for taxpayers from a straight-up financial business perspective. Look at every program – we make incredibly difficult decisions around whether or not they work. Arguably, we simply do not do that with tax exemptions.”

            Review Process Under Way

            Actually, the two panels do ask those questions. For the last five years, the Joint Legislative Audit and Review Committee has been reviewing tax breaks on a 10-year schedule. The Citizen’s Commission on Tax Preferences has been looking over its shoulder, adopting the schedule and sometimes coming to a different conclusion. But the gist of it may disappoint those who think the budget can be balanced by whacking loopholes. What the panels have been finding is that there is a justification for most tax breaks that are on the books, to prevent double taxation, avoid inequities in the tax code, or spur the development of industry.

            Occasionally they find that a tax preference or exemption isn’t doing the job that was originally intended. Or they find that the original intention was never well explained in the first place, and its rationale has been lost in the mists of time. Those findings don’t require the Legislature to do anything, and there’s a reason for that. Often the beneficiary can raise arguments that the tax break makes sense, or a policy question is involved – as in the state’s current exemption from sales taxes for Oregon residents. Such matters are the essence of political debate.

So here’s the scorecard. Of 95 tax exemptions reviewed since 2007, JLARC staff decided 21 deserved further scrutiny by the Legislature. In one of those cases, the Legislature allowed the break to expire; the rest remained on the books. But there were only five cases where JLARC recommended repeal. Lawmakers followed through and repealed three of them.

            Mass Repeal a Problem

            Patrick Connor of the Washington state chapter of the National Federation of Independent Business says there’s nothing wrong with a rigorous examination of tax policy. As director of an organization representing 8,000 small businesses across the state, Connor declared last November that perhaps the state ought to reexamine some of the large tax breaks it grants to major corporations as an alternative to a proposed sales tax increase that will hit small business statewide.

            “I think we see a need to have a conversation about tax preferences, and generally speaking, small business would be supportive of a periodic review of all tax preferences,” he said.

            But he said repealing them en masse could mean a hit on taxpayers of hundreds of millions, if not a billion, all at once. It would be hard for citizens and businesses to pay those new and increased taxes, just as it would be a big challenge for lawmakers to reinstate them. And he noted that some of the tax breaks the bill would repeal could have a big impact on consumers. The repeal of tax breaks on agriculture, for instance, could ultimately lead to higher food prices. “There are some things we would all agree on as a state,” he said. “Some tax exemptions should continue, like the sales tax on groceries.”

            That one isn’t on the hit list. But jack up taxes on agriculture and the effect is the same.

            Not Against Tax Breaks

            Carlyle and Anderson say they’re not trying to raise taxes, and they’re not telling tax exemptions to go kick rocks. They say there’s no secret agenda. But they say mass repeal is the intelligent way to go about things.

            Carlyle said he thinks tax breaks should undergo the same level of scrutiny and be held to the same level of intellectual rigor as every other program in state government. Some existing tax breaks should clearly be left in place, he said. “Some of them work and we can prove with analysis that they do work,” he said. But he’s not so convinced of the case for Intel’s $2 million tax break, or the $250,000 in exemptions enjoyed by Google and Microsoft.

            The trouble is that it’s so hard for the Legislature to repeal anything, Carlyle said. “I think it’s fair to say that the public has a deep sense of anxiety that there is not a level playing field with respect to tax policy in the state. I think there is a lot of evidence to suggest that they are accurate in that sense of anxiety.”

             Anderson said, “Olympia is about who shows up. The squeaky wheel gets the grease.”

            Just Not Fair

            Carlyle said it’s just not right that a tax break can be passed with a simple majority vote, but it takes a two thirds vote to repeal one.

            That’s the effect of the supermajority requirements that Washington voters keep imposing on the Legislature. Under the rules, most recently reaffirmed with Initiative 1053 in 2010, repealing a tax break is considered a tax increase, and so two-thirds of the House and Senate must agree, a near-impossible hurdle.

            “It’s simply inconsistent, and that’s bad public policy,” Carlyle said.

            And that brings up one of the big ironies of the bill. Because HB 2762 directly repeals tax breaks, albeit many years in the future, it also requires a two-thirds vote. So Carlyle and Anderson acknowledge that their proposal faces an uphill battle.

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