Seattle Weekly Gives Us 567 Reasons Why Our State Budget is So Screwed

The rusting husk of Gasworks Park, a fitting metaphor for our elected government. Photo by our Flickr pool contributor feekner.

Late last month, I wrote about Oregon's special vote for Measures 66 and 67, two bills passed by the legislature and signed by the governor that were sent to the voters as a referendum, which raised taxes to help close a budget shortfall. One raised the minimum corporate tax for the first time since 1931, while the other was a modest increase in the income tax for high-earners (Oregon has an income tax but no sales tax). Both measures passed with substantial margins, with roughly 54 percent in favor to 46 percent opposed.

The vote was closely watched nationally because Oregon, like Washington, is a state known for its anti-tax fervor. Oregon had its own Tim Eyman, has caps on property tax increases, and has repeatedly rejected new tax increases. But faced with dramatic cuts to crucial services, Oregon voters banded together with their elected representatives and passed two very simple measures that kept the state working.

Our fearless leaders in Olympia, on the other hand, have done virtually nothing. While Gregoire has stated she wants to "buy back" some of the slash-and-burn budget cuts she originally proposed (as a matter of state law, which requires her to present a balanced budget--from the beginning, she made clear she did not support that budget), her alternate budget still relies extensively on cuts, with a large portion of new revenue expected from federal stimulus money. The House has introduced a bill (HB 3176) that would generate $210 million in new tax revenues by mostly closing loopholes, but that's a pittance compared to the overall $2.6 billion shortfall over the biennium.

So, beyond closing loopholes, the question is: Where can Washington generate new revenues? Surely, I wondered after looking into the Oregon vote, there are equally simple measures we could take in Washington to solve our own problems. Turns out, I was wrong--as Rick Anderson's story in the current Seattle Weekly details, Washington's tax system is an insane labyrinth of special breaks and exemptions, some 567 of them accounting for upwards of a stunning $98.5 billion in tax revenue that wasn't collected over the last two years.

If ever there was a case for fundamental tax reform, Anderson's story is it. A system that requires over 500 special rules to encourage business in the state is inherently dyslexic: if you need that many special exemptions in order to achieve your overall economic goals, there's something wrong with the basic system, whereas if they're not necessary for the public good, you have special interests run amok, abusing the system for their own gain. And to judge from Anderson's article, we have a severe problem with both at the same time.

Still, given the unlikelihood that our equally dysfunctional government would be capable of rewriting the tax code in an effective and meaningful fashion, Anderson's article does read a bit like a kid looking through the window of a candy shop. There's the hundreds of millions Locke handed Boeing every year (some $3+ billion over 20 years) to not build all the 787 Dreamliners here (the company shopped part of the production out to South Carolina, for even more tax breaks and no pesky unions). Or the nearly $1 billion overall that Microsoft has avoided paying in licensing taxes over a decade by recording them through a small office in Nevada, while at the same time receiving more property tax breaks for building "research and development" facilities in the state.

Then there's the chump change. $4.3 million in business and occupancy tax exemptions for the privately-owned Emerald Downs horse track. Alcoa, which operates two aluminum smelters in the state, gets roughly $3 million in property tax breaks every two years, the same company that's left at least one Superfund clean-up site in the state, for PCB deposits in the Columbia River and TCE contaminated groundwater, from their former Vancouver smelter.

The list goes on and on. The State Department of Revenue identified at least $14 billion dollars in potential revenues from eliminating outdated and unnecessary tax breaks in 2008. While the House bill seeks to address some of the above identified loopholes (particularly by adjusting nexus laws to make Microsoft and others pay for licensing taxes in-state), the fact that it gets us only a little over $200 million is a sign that the political will doesn't exist to actually deal with the state's current and long-term budget issues by making meaningful changes to the tax code.

And that's the glaring difference between government in Oregon and Washington. In Oregon, it was the government that led, and earned the public's support along the way. In Washington, the government seems content to wait for the public to push, through the voter initiative system, and we all know where that's gotten us.