Dems want to end tax breaks to ease budget cuts

Washington Democrats have proposed several bills to end tax exemptions and dedicate the resulting revenue to social services, which have been hard-hit by budget cuts.

On Thursday, a group of Senate Democrats presented about a dozen proposals to end tax breaks, ranging from exemptions for corporate banks to breaks for livestock owners who purchase bedding for chicken coops.

But after Initiative 1053 passed last fall, lawmakers must come up with a two-thirds supermajority vote in both houses to create new taxes or make any changes to current tax preferences. The Democrats noted this has made it nearly impossible to close tax loopholes and raise revenue to save much-needed programs.

"We believe that these restraints have produced a budget that, while necessary, is not sufficient to meet the needs of Washington's families, economy or communities," said Sen. Phil Rockefeller, D-Bainbridge Island. "These reductions do not reflect our long-term values and needs as a state."

The all-cuts budget plans from both houses show the product of that requirement: The House's proposal cuts $4.4 billion and the Senate's $4.8 billion in state support for mainly social services and education.

The bills come a week after thousands of protesters from labor groups across the state rallied at the Capitol calling for legislators to close corporate tax breaks instead of cutting services.

Democrats hold a 26-23 majority in the Senate and a 56-44 majority in the House - not enough for a two-thirds vote.

Some senators have neatly sidestepped the issue by introducing their tax break bills as referendums, which require only a simple majority in the Legislature and are then put out to the people for a vote.

Several of the proposed bills have language specifically tying them to the passage of a referendum introduced by Senate budget chief Sen. Ed Murray, D-Seattle, which calls for voters to decide whether the "repeal, reduction or modification" of a tax exemption counts as raising taxes and is therefore subject to I-1053's two-thirds requirement.

If voters pass Murray's referendum this fall, the other bills could then go into effect if they make it out of the Legislature this session.

Supporters said they don't think voters last November thought I-1053 would apply to closing tax loopholes, and they want to test that theory.

Rockefeller's bill would generate the most revenue at an estimated $338 million for the next biennium and has three parts. First, it would give a 25 percent "haircut" to any preferential B&O tax rates given to businesses and individuals across the state. Their tax rate advantage would not disappear; it would just be reduced.


"In a state of six million people, it should be pretty clear we're not talking about an ordinary tax across the board," Rockefeller explained. "We're talking about a very special, limited, targeted tax preference."

His bill would also close a loophole that exempts interstate lending institutions from paying taxes on interest revenue earned off of loans backed by first-time home mortgages. That break is unique to Washington.

It also proposes to repeal the exemption on investment income for non-financial firms that earn more than $250,000 a year in interest on their investments.

Some of the proposals were small: A bill from Sen. Jeanne Kohl-Welles, D-Seattle, would close a tax break on one-time membership fees collected by clubs and organizations for a savings of $4.5 million per biennium.

Another by Sen. Tracey Eide, D-Federal Way, would close the exemption on heating and bedding for chicken coops and the exemption on artificial insemination of livestock, to generate $2.5 million in the next two years.

"We don't provide for our children, but we do for our chickens," Eide said. "It's time we regroup."

The bills differed in where they would direct the money gained from closing tax breaks. Rockefeller chose to dedicate it to the general fund for the state, but other senators had more specific destinations, such as a program in the Department of Human and Social Services that's been cut under the current budget proposal and which provides hearing aids and eyeglasses for adults receiving Medicaid.

A few bills have been introduced in the House, as well, to close the sales tax exemption for out-of-state shoppers to bring in $83.7 million in the next biennium.

While the proposals were only recently put forward, Republicans so far have not been on board with any of them and were quick to point out that the same Democrats who want to end tax loopholes have actually introduced new ones this session.

Earlier this session, Kohl-Welles introduced a bill to grant an excise tax exemption to zoos, and another that would give a B&O tax credit to movie makers to enhance Washington's motion picture competitiveness.

The senators have only 10 days left of regular session to bring these bills before a hearing or onto the floor, but Rockefeller pointed out that normal cutoff deadlines do not apply if the Legislature goes into special session after April 24.

These bills would not alter the cuts already laid out in the current budget proposal; Rockefeller said they are a way of going forward and changing "conventional wisdom" about how a balanced budget can be brought about.