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Memo to Washington: Boeing tax breaks only make us weaker

Commentary: The Legislature rushed to pass Boeing's requested tax breaks this weekend, but it's not clear that we'll really see much benefit.
Boeing 737

Boeing 737 Cristian Ghe/Flickr

Lawmakers passed tax incentives totaling almost $9 billion to keep Boeing and its 777X related jobs in Washington state this weekend. The tone, throughout the very fast and furious passage, was one of urgency: We need to pass this, because Boeing won't stay here without it. Few things, though, are ever quite as cut-and-dried as they seem.

Losing Boeing would be a tragedy for Washington, of course. There are around 33,000 machinist jobs alone at stake under the new contract, which promises to place 777X wing construction and final assembly in-state in exchange for significant cutbacks in pension plans, wage increases and wage progression for new workers. (The machinists union has so far come out largely against the contract.) In exchange, the jobs would be guaranteed and the wages would be decent — for those who have already climbed the ladder. Boeing is offering an early retirement plan and there’s a $10,000 signing bonus. 

Boeing’s promise to place its composite research in Washington could be just as important as the initial jobs the contract promises to provide. Significant carbon-composite investment (to the tune of an estimated $2 billion) for the 777X’s high-tech wing could help establish Washington as a composite center that would enhance its local aerospace sector and help the state maintain its draw for Boeing and other aerospace companies. 

Taxes may not be the best avenue for pursuing further prosperity — or Boeing — though. Last month, the Tax Foundation released a report meant to highlight how states “with the most competitive tax systems will reap the benefits of business-friendly tax climates.” In this case “competitive” refers to states with “business friendly” tax codes that result in lower taxes, easier and expedited filing and other factors. The data, however, show something else.

Slate and Governing looked at the study soon after its release and found that there was little to no relation between business friendliness (as ranked by the Tax Foundation) and state employment or median wage. Further, a look at the foundation’s own map generates skepticism: Three of the five best-ranked business friendly states are among the lowest in Gross State Products (the state version of GDP). Meanwhile, two of the worst ranked states (by business-friendliness) have two of the three largest GSPs. 

Overall, a state's tax climate and its GSP seem to have a slightly negative relationship: States with less business-friendly tax structures have, on average, larger GSPs. The same holds true for growth since 2008: States with more business-friendly tax structures have, on average, grown less — both in terms of raw GSP and GSP as a percentage — than states with less business-friendly tax structures.

Business-friendly tax structures and incentives, it seems, are not the determining factor for state economic growth. Instead, we may look to innate qualities: history, experience, environment. It is hard to imagine the NYSE moving to Wyoming to escape New York’s tax burden, for example. The positive attributes of its location balance out the business-unfriendliness of New York. And a lack of tax breaks can help fund things like education, which can draw more advanced, and profitable, businesses. 

Likewise, Boeing's jetliners have a 56-year history with Washington state. We’re known for turning out quality airplanes on-time. This is key because the other oft-discussed option for the 777X is South Carolina, currently known for turning out fewer-than-expected planes at a slower rate.

South Carolina’s manufacturing base is also small, employing around 6,000 workers. (As opposed to 30,000 machinists alone in Washington.) Expanding that workforce — in South Carolina or elsewhere — would take time and investment. With $87 billion in pre-orders, time is not something Boeing wants to need. Coupled with quality assurance problems on the 787, attributed to significant outsourcing, South Carolina looks significantly less attractive.

So, assuming Boeing keeps production in Washington, the Legislature may have had little to do with it. Tax breaks may be the icing on Boeing's cake, but they're not likely the baking soda that makes the company's cake rise. And, as it turns out, they may not be doing much for the rise of our state economy either- not when the money could be spent on other priorities. 


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Comments:

Posted Tue, Nov 12, 7:35 a.m. Inappropriate

Interesting and well-written piece.

FAR too many government heads around here trot out "Tax Foundation" figures to justify their excessive and regressive taxation proclivities.

Here's Reuven Carlyle doing that:

http://crosscut.com/2013/01/07/washington-legislature/112313/legislative-overview-inslee-budget-taxes/

Ross Hunter cites to the Tax Foundation's reports as well, such as in this comment thread:

http://crosscut.com/2012/11/27/education/111664/dick-nelsons-suggestions-education-reform/

The reason the democrats like the Tax Foundation reports stems from how they cast high regressive taxes in a good light. The abusive and overly-regressive state/local taxing regime here is the worst in the country on that score, and that is because the democrats wanted it that way to get and keep political support from businesses. It's nice to see some scholarly articles highlighted here at Crosscut that debunk the notion that a "positive business taxation climate" is a good thing for people. Maybe the democrats here will learn something from this.

crossrip

Posted Tue, Nov 12, 12:13 p.m. Inappropriate

"It's nice to see some scholarly articles highlighted here at Crosscut" Amen.

Occasionally, intermingled with the WSJ's new fluff aimed at readership math, one can still find the same interest in myth busting. For instance, today is a particularly good day:

1. In response to California's request, the DOE's Lawrence Berkeley National Laboratory analyzed the state's environmental policies and goals for reducing statewide emissions and reported that "even if the state were to adopt more aggressive measures, emissions would exceed the state's target by 100%—the uncontrolled driver being population and economic growth.

2. The world continues to subsidize green (and other) technology in lieu of making it work better and cost less. Spain spends $11 billion a year subsidizing green energy, more than its government spends on higher education. Venezuela spends $22 billion a year subsidizing retail purchasers of its gasoline, more than twice what its government spends on health care. A recent IMF report "Energy Subsidy Reform—Lessons and Implications" uses math of its own invention to arrive at U.S. gas under-taxation of 44 cents per gallon, which is less than the actual never mentioned or accounted for actual current taxation of 49.5 cents per gallon.

3. The Federal Reserve's five years of bond purchases now totals $4 trillion, the largest financial-markets intervention by any government in world history. Prior to which, in its almost 100-year history the Fed had never bought ONE mortgage bond. The impact? A tripling of the U.S bank collective stock price and a bigger cartel: 0.2% of U.S. banks now control more than 70% of the U.S. bank assets. Main Street? By the Fed's own admission, a mere $40 billion bump in U.S. output (0.25% of GDP).

afreeman

Posted Tue, Nov 12, 10:04 a.m. Inappropriate

It's of course just Boeing *jets* that have a 56-year history here. Boeing itself was founded nearly 100 years ago, in 1916, with a plant on the Duwamish and a hangar in Eastlake.

Posted Tue, Nov 12, 8:01 p.m. Inappropriate

Granting or extending tax breaks may be the right thing to do in some instances, but the terminology makes it sound like there is a bottomless goodie bag that we can dip into. That $9B will of course be paid by other taxpayers instead, individuals and businesses. It would be great if our politicos and media were to remind us of this fact. For example, if we simplistically divide that tax break between every WA resident, it comes out to over $1300 each. These "breaks" have real consequences, both good and bad, and it would serve us well to make the numbers relevant to ordinary people

jkaje

Posted Wed, Nov 13, 8:49 p.m. Inappropriate

"Memo to Washington: Boeing tax breaks only make us weaker"

Memo to Adrian: So would losing thousands of jobs to South Carolina.

This is not a great deal for taxpayers, but saying good-bye to tens of thousands of well-paid jobs sent across the country would be worse. Boeing isn't the tail that wags the dog anymore, but you'd be pretty hard-pressed to find many employers that are more important to the local economy. And they now have options that do not include this state.

For better or for worse, this is the new reality.

Posted Wed, Nov 13, 9:10 p.m. Inappropriate

So, something like 65%-70% of the rank and file gave this proposed contract the "thumbs down".

If a contract elicits such a negative reaction, we should assume it stunk.

Hey "GuiltyBystander" -- $50 says "thousands of well-paid jobs" won't be sent from Everett to the eastern seaboard any time soon. Put your money where your mouth is?

crossrip

Posted Wed, Nov 13, 9:14 p.m. Inappropriate

Our state legislators shafted the individuals and families here who will have to pay extra regressive taxes to make up for the diminished revenue that will result from those lawmakers' grants of massive tax breaks for Boeing earlier this week.

But that's nothing new . . . it's how democrats here have been abusing their powers for the last couple of decades.

crossrip

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