The hole in the “loophole” debate
News Tribune columnist Peter Callaghan explores the merit of “tax loopholes” and the Legislature’s struggle with tax policy in his recent column. These tax preferences, or exemptions, typically allow an industry to enjoy a reduction in or an exemption from the state’s business & occupation (B&O) tax. Every preference or exemption has been passed by the Legislature at some point in time. The B&O tax rate is broadly viewed by businesses as too high to encourage investment in Washington state. Tax preferences are generally set at a rate that allows industries to be competitive and encourages employers to locate and invest here. These companies create jobs and generate more tax revenue for the state.
Some lawmakers have recently focused on eliminating tax incentives as a strategy to raise more general fund tax dollars. Industries targeted by these tax hikes have argued that they will kill jobs and harm the economy.
Callaghan specifically zeros in on a tax incentive passed as part of the 2013-15 state budget that creates incentives for Darigold to place an infant-formula plant in Washington state. According to Darigold Senior Vice President Steven Rowe, Washington starts out with one strike against it because the B&O tax adds a cost that makes Washington less favorable than other states for investment. Darigold thus asked the legislature for a tax exemption. “Without the B&O tax component, there’s no way they’d do it. They’d just go to Idaho or Oregon,” said Rowe of their partners.
“This very small economic impact to the (state) budget line is ridiculous — ridiculous compared to the value that will return to the state over the long term,” he said. “Bottom line, this was a very wise move for the Legislature and for the state,” says Rowe.
Will Darigold benefit financially from a tax exemption? Yes. Will jobs be created? Yes. Will those employees take their new paycheck and spend it in our communities, thereby creating more tax revenue for local and state governments and schools? Yes. Will spin-off businesses and associated jobs be created? Yes. Do incentives work? Yes.
Does Washington state want to incentivize job creation, or not? Therein lies the central question, and the hole, in the loopholes debate.
What do you think? Contact your legislators and let them know.