Tax breaks and the power of inertia
by John Stang
State Sen. David Frockt
In a vote that illustrates a continuing dilemma for state politicians, a legislative committee on Wednesday saved a tax break for dentists — the only recommendation to get rid of a tax exemption put before it on Wednesday.
The actual issue is minor. The tax break is for insurance premiums for dentists, and its elimination would have provided $22.4 million in state revenue in 2015-2017.
But Wednesday's debate was a microcosm of the issues facing the state Legislature as it ponders how to handle tax exemptions. The bottom line: Tax breaks are easy to create and difficult to eliminate.
Washington has at least 650 tax exemptions worth tens of billions of dollars. Eliminating tax exemptions in bulk and in the abstract has been a popular battle cry in Olympia. But, when specific tax exemptions are studied individually and in detail, a rationale to keep each one usually prevails.
Last session, the Democrats wanted to eliminate 15 tax breaks, and managed to get two — on married couples not having to pay inheritance taxes, plus a tax exemption on landline phones — through the Republican-dominated Senate. Meanwhile, the Republicans managed to get 17 new but relatively smaller tax breaks through the Democratic-controlled House.
Also this year, House Finance Committee chairman Reuven Carlyle, D-Seattle, and Senate Majority Coalition Leader Rodney Tom, D-Medina, got a bill passed that requires specific job-related goals and expiration dates on new tax exemptions and on the renewal of existing tax breaks.
Against that recent history, the Joint Legislative Audit & Review Committee — eight Republicans and eight Democrats from the House and Senate — met Wednesday to review the JLARC staff's recommendations on what the Legislature should do with 22 tax exemptions. The JLARC is supposed to review individual tax breaks every 10 years. A rundown of the 22 tax breaks is here.
The JLARC staff recommended keeping 12 of the tax breaks, continuing to study nine more to see if their goals are actually being met, and to get rid of the dentists' insurance premium exemption. The dentist exemption was passed in 1993, but no definite goals were written down for it, and the intent at the time appeared that this was to be a temporary exemption, the JLARC staff reported.
But a citizens committee that advises the JLARC, the Citizens Commission for Performance Measurement on Tax Preferences, recommended keeping the dentists' insurance premium exemption. This was unusual because the citizens commission tends to be a bit more gung-ho about closing tax exemptions than the JLARC. The citizens commission's rationale was the former Sen. Phil Talmadge, who sponsored the 1993 bill, told the committee that promoting oral health and helping dentist offices to remain open were the 1993 legislation's intent. Meanwhile, JLARC member Sen. David Frockt, D-Seattle, said the 1993 bill's lack of an expiration date showed that the Legislature's original intent was to make this a permanent tax break.
While the advisory commission wants to keep the dentists' tax break, commission member Steven Miller told the JLARC that too many old tax break bills don't have the Legislature's intentions and expiration dates written in them.
In the end, Democrats and Republicans joined forces in a 10-2 vote to keep the dentists' tax break intact, while following all of the other JLARC staff's recommendations. Rep. Tami Green, D-University Place, and Sen. Mark Mullet, D-Issaquah, were the nay votes, citing the fuzziness of the intent and expiration in the 1993 bill
Since 2007, the JLARC has recommended terminating eight tax exemptions, allowing 12 more to expire, keeping 111, and recommending 49 for more study. The Legislature has eliminated only a handful of exemptions. And the pattern of preserving tax breaks stayed strong on Wednesday.
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