Progressive Ideas We Need: Biennial budgets that record tax breaks as state expenditures

Editor’s Note: Today and through­out this week­end, NPI is run­ning a spe­cial series here on the Cas­ca­dia Advo­cate called Pro­gres­sive Ideas We Need, high­light­ing pro­pos­als that would raise qual­i­ty of life in our region and in the Unit­ed States as a whole. Each post is con­tributed by an NPI staff, board, or advi­so­ry coun­cil member. 

We may not be used to think­ing of them this way, but the truth is that tax exemp­tions, pref­er­ences, deduc­tions, cred­its and defer­rals are off-bud­get expen­di­tures. They lack the account­abil­i­ty and trans­paren­cy that exists for oth­er expen­di­tures the state makes as part of the bien­ni­al bud­get process.

Tax­pay­ers deserve to know who is receiv­ing these tax breaks, how much mon­ey is involved, and for what rea­son they are given.

Accord­ing to the Wash­ing­ton State Depart­ment of Revenue’s 2016 Tax Exemp­tion Study, while the State expects to col­lect some $7.4 bil­lion in busi­ness and occu­pa­tion (B&O) tax rev­enue in the cur­rent 2015 ‑2017 bien­ni­um, it exempts from col­lec­tion some $11.4 bil­lion. When sales and use tax­es were includ­ed with the analy­sis, the results are sim­i­lar – the state expects to col­lect some $18.9 bil­lion in rev­enue while exempt­ing some $16.9 bil­lion in revenue

Wash­ing­ton State has cre­at­ed some 694 tax exemp­tions over the years. Over 450 of these are dis­cre­tionary tax exemp­tions, not required by Fed­er­al or State con­sti­tu­tion­al law. These dis­cre­tionary tax exemp­tions will account for over $28.3 bil­lion in B&O and sales/use tax rev­enue not col­lect­ed in the cur­rent biennium.

Includ­ing prop­er­ty tax exemp­tions the 2016 Depart­ment of Rev­enue Report projects that in total, Wash­ing­ton State will see as off bud­get tax expen­di­tures almost $40 bil­lion in tax exemp­tions this bien­ni­um while only col­lect­ing rev­enues of $32.6 bil­lion for the Leg­is­la­ture to fund its bien­ni­al budget. .

HB 1500 intro­duced by Rep­re­sen­ta­tive Ger­ry Pol­let and 32 oth­er State Rep­re­sen­ta­tives would require the gov­er­nor to pro­pose and the state leg­is­la­ture to adopt a tax expen­di­ture bud­get every two years as part of the bien­ni­al omnibus oper­at­ing appro­pri­a­tions act. A com­pan­ion bill is being intro­duced in the State Sen­ate by Sen­a­tor David Frockt with twelve oth­er sponsors.

HB 1500 would give the Wash­ing­ton State Leg­is­la­ture an oppor­tu­ni­ty to peri­od­i­cal­ly eval­u­ate the need and effec­tive­ness of the state’s tax exemp­tions in meet­ing cur­rent state needs. They would do this at the same time they are mak­ing bud­get deci­sions about pri­or­i­tiz­ing oth­er state expen­di­tures for pub­lic ser­vices as part of the bien­ni­al bud­get appro­pri­a­tions process.

This mea­sure would require new and exist­ing dis­cre­tionary tax pref­er­ences to be autho­rized every two years in a tax expen­di­ture bud­get. It will add much need­ed trans­paren­cy and account­abil­i­ty to the hun­dreds of exemp­tions and pref­er­ences, along with their cost and how each deci­sion to spend mon­ey on an exemp­tion or pref­er­ence is a choice to expend funds for this pur­pose with par­tic­u­lar beneficiaries.

The tax expen­di­ture bud­get would detail the fis­cal impact, pur­pose, and effec­tive­ness in meet­ing the pur­pose of each tax preference.

Tax pref­er­ences not includ­ed in the tax expen­di­ture bud­get would expire at the end of the cal­en­dar year in which the bud­get is adopted.

Please con­tact your leg­is­la­tors today and urge them to sup­port the Tax Exemp­tion Trans­paren­cy and Account­abil­i­ty Act.