Article by Erik Smith. Published on Friday, April 20, 2011 EST.

Would Allow Them to Close ‘Loopholes’ With a Simple Majority Vote, Not an Impossible Two-Thirds

State Sen. Phil Rockefeller is flanked by Senate Democrats at Thursday’s news conference. Visible, from left: Scott White, Tracy Eide, Karen Keiser, Kevin Ranker.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, April 15.—Senate Democrats say they’re declaring war on business tax breaks, and will ask voters in November for permission to end business tax exemptions with a simple majority vote.

            The announcement kicks off a battle that has been expected all session long, as labor, activists and left-leaning Democrats have argued that closing tax ‘loopholes’ offers a better solution to the state’s budget crisis than cuts to state spending. Their referendum would eliminate a roadblock imposed by last year’s Initiative 1053, which requires a two-thirds vote of both houses of the Legislature before taxes can be increased. What most voters didn’t realize, they say, is that it also keeps tax breaks from being eliminated.

            At stake are more than $6 billion in tax preferences enjoyed by both business and the general populace – not that anyone is talking about removing the popular sales tax exemption on food. Rather, the Democrats are talking about ending or reducing special breaks targeted at specific businesses, adopted over the years for sound business reasons – but which they say don’t seem nearly so deserving in a time when state programs are being whacked.

            The balance has tipped too far in the direction of budget cuts, declared state Sen. Phil Rockefeller, D-Bainbridge Island, at a news conference Thursday. “We don’t want to be prisoners to this sort of one-sided, one-way thinking,” he said.

            Big Support at Statehouse

            Rockefeller was joined by 12 other Democratic senators at the news conference – more than a fourth of the state Senate and one vote shy of a majority of the Senate Democratic caucus. But what is more important is they have plenty of support. Last week, as thousands of union members and activists descended on the state Capitol for a week of demonstrations, closing tax loopholes was their rallying cry. And labor groups have been hinting all session long that they may force the issue in November.

            Now the battle has been crystallized to a single point – a resolution introduced by state Sen. Ed Murray, D-Seattle, Senate 5944, which would place a resolution on the ballot that would ask voters whether ending tax exemptions should count as “raising taxes” under Initiative 1053. That measure has made it virtually impossible for Democrats to raise taxes or alter tax exemptions, because Republican votes would be needed in order to meet the two-thirds vote requirement.

            At this point it isn’t clear whether the majority Democrats in the Legislature will also ask voters to end specific tax exemptions at the same time. The referendum bill was introduced Thursday together with four other bills that would eliminate or reduce some of the exemptions on the books. Three of those also would be sent to voters if passed by the Legislature – something that can be done with a simple majority vote.

            But that’s a matter of political strategy. Democrats acknowledged that by doing that, they would be waving the red cape at the business interests that would be affected – and that millions of dollars would likely be spent to defeat them. In response to a reporter’s question, state Sen. Kevin Ranker, D-San Juan Island, said, “Thanks for giving them that idea.”

            Lawmaker could chop those same tax breaks next year if Murray’s referendum passes – without naming the targets in advance.

            The Top Targets

            The bills give a hint, though, of where the Democrats are headed.

Rockefeller’s Senate Bill 5945 would cut all preferential business and occupations tax rates by 25 percent. It also would tax investment income from non-financial firms in excess of $250,000 a year, and eliminate a mortgage-interest tax break for large out-of-state banks doing business in Washington. That’s the biggest of the bunch, raising $338 million in a biennium.

Ranker is sponsoring SB 5946, which would make corporate officers liable for unpaid taxes if their businesses go under. Right now they are liable for sales taxes, but not B&O, utility taxes and other taxes.

Sen. Jeanne Kohl-Welles, D-Seattle, is sponsoring SB 5932, which would eliminate B&O tax breaks and sales tax exemptions for private-club dues and fees.

            And Sen. Tracy Eide, D-Federal Way, is backing SB 5947, which would end certain livestock tax exemptions, including exemptions for artificial insemination and the outfitting and maintenance of chicken coops.

            Children Versus Chickens

As the Democrats outlined their proposals before the packed hearing room in the state Senate office building Thursday, they brought whoops and cheers from the audience as they scored rhetorical home runs.

            “We don’t provide bedding for our children, and we provide bedding for chickens,” Eide said. “Ladies and gentlemen, we provide a tax-exemption loophole for paying for propane and natural gas to heat those barns those chickens are in. We don’t provide for us. We don’t provide for our children, and yet we do for chickens.

“You know, you laugh. But I take this very seriously. It is time that we regroup and we look at every line item there is. We have subsidized for over a half a century artificial insemination for livestock. I know that some of these mean something to someone. But when it comes to a time that we are looking at the health and welfare of our children, I am sorry, they outweigh the chickens.”

            Reduces Fiscal Discipline

            The announcement sets the stage for the biggest fight of the year, one that will continue after this year’s legislative session is completed. Because Democrats hold majorities in the House and Senate, Murray’s referendum bill stands an easy chance of passage.

            Republicans say the emphasis on closing tax loopholes will reduce pressure on the Legislature for fiscal discipline. And they say Democrats aren’t exactly being consistent. They note that Senate Democrats have sponsored 13 tax-break bills themselves this session. Among them are two bills from Sen. Kohl-Welles for moviemakers and zoos.

            “I think the public knew quite well what they were doing last November,” said state Sen. Mark Schoesler, R-Ritzville. “The voters just got done repealing a combination of tax increases and tax-loophole closures. I think they’re underestimating the knowledge of voters.”

            And he said there’s a story behind every one of the tax breaks the Democrats are hammering. Artificial insemination gets a tax break because there’s no tax on the natural variety. Chicken farmers get a break because they compete with out-of-state farmers who don’t face the same taxes. Chickens versus children?

Your support matters.

Public service journalism is important today as ever. If you get something from our coverage, please consider making a donation to support our work. Thanks for reading our stuff.