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How the Boeing deal makes tax reform harder

Is Washington state dooming itself to a lifetime of corporate pandering?

There are many problems with the state of Washington's recent pact with Boeing over the 777X assembly work. One of the most troubling, though, is that it will make tax reform more difficult in Washington.

The benefits package, approved for both Boeing and the state aerospace industry, pegs tax breaks at $8.718 billion and extends many benefits first approved in 2003 until 2040.

"Building the Future…Together," the Washington Department of Commerce's bid to keep the 777X, touts that bill as "the largest corporate tax break in U.S. history." Ironically, it refers to those tax breaks as "taxpayer savings" — the “taxpayer” being Boeing and other aerospace businesses, not thee and me.

Most of the tax breaks are B&O-related taxes that Boeing and its partners won't have to pay. Those amounted to $177 million in 2013 and tallied nearly three-quarters of a billion ($726 million) over the last five years.

The state's pitch emphasizes the depth and extent of the Boeing-Washington marriage. A letter, signed unanimously by all of Washington’s federal elected representatives, begins the agreement.

"[N]o state's federal delegation can compare to our enthusiasm and commitment….We are the aerospace industry's strongest allies and loudest advocates in Congress," our senators and representatives write. It is a letter that forever puts to rest the snickers about the "Congressman from Boeing." Our entire Congressional delegation is from Boeing and they’re proud of it. It’s on paper.

Both capitalists and socialists can rejoice. Boeing is diverting its expenses to the public purse, state government is deeply embedded with the company and our state representatives are committed to enabling that strategy. Forget economic libertarianism: This is aerospace socialism — without worker control.

Whether it's defense contracts, trade agreements, tax breaks, or grants and subsidies, the Boeing-Washington relationship is not about the free market, except when that makes the case for special treatment.

The overall document is an eye-opener. Particularly at a time when the state Supreme Court is ordering full funding of public K-12 education because the state has failed to do so and the Senate's conservative coalition is blocking tax and spending increases. 

If Boeing is getting $8.7 billion more in tax breaks, who makes that up? It's not like we have that money to spare. We want great jobs and a thriving industry, but in the current environment, the special treatment Boeing receives is somewhat galling.

Republicans have criticized Jay Inslee's recent backing of a bill that would give K-12 teachers a deferred cost of living increase out of a supplemental budget. Yet the Boeing bill, passed last fall during a special session, includes lots of new education spending.

The state is giving grants for Boeing-related research at University of Washington and Washington State University. It is staffing training programs with Boeing employees at Paine Field. It is putting large resources into expanding aerospace-related training programs at the community and technical colleges, and in creating new training programs. They've approved $8 million for new slots for students in aerospace fields. There's $12.5 million for Central Puget Sound Aerospace Training Center in Renton — $5 million of that in the new Boeing package passed by the spending-resistant legislature.

At a time of scarcity for fulfilling our K-12 commitments, anything Boeing-related, including unfunded expansion programs, is getting bipartisan approval. No child will be left behind — if he or she wants to work on the factory floor in aerospace composites. That is, if their job isn’t eliminated by “lean” management and robotics.

While the state tallies all that it is doing and will do, the Boeing deal makes it even harder to get comprehensive, progressive tax reform off the ground. An income tax on the wealthy was already a hard sell in Washington, but the state's Boeing bid makes it harder still. 

"Washington State's lack of an income tax, combined with other tax incentives for aerospace companies established in 2003, have allowed the industry to prosper," the DOC bid claims. In other words, don't expect an income tax to get off the ground in Boeing country.


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Comments:

Posted Wed, Jan 22, 5:19 a.m. Inappropriate

It's hard to argue that the Boeing deal isn't sabotaging the movement for corporate welfare reform in WA when it spawns bills like HB-2203, which builds upon the Boeing deal to amend the "definition of commercial airplane for specific tax preferences to include other types of commercial aircraft to encourage the migration of good wage jobs in the state

Posted Wed, Jan 22, 7:02 a.m. Inappropriate

The simple reality of the state and local taxing structure here is that it reflects the values of the democrats who have controlled it for a generation. They can not hike taxes fast enough that target individuals and families, and they refuse to use the spectrum of taxes that other state and local legislatures use to target the wealthy and corporations:

http://upload.wikimedia.org/wikipedia/commons/6/69/19237_TaxFoundation_v2.gif

Everyone understands why we are at the bottom of that list, right?

Reuven Carlyle's essay and that quote from it above fail to acknowledge the problem and offer the wrong solutions. We don't need “lower rates” on profitable corporations. Moreover, the “base” does not need “broadening” – we've got the highest sales taxes in the country which hit all individuals and families and target those with the least means for the largest financial impacts. Carlyle's just blowing smoke there about eliminating tax preferences; he voted for the massive Boeing tax breaks.

Carlyle and the rest of the democrats now want to take the next step on their path to making our state and local taxing regime even worse for people here. They are trying to hike sales taxes and car tab taxes even more “for transit”.

The fact of the matter is that the only democrats that flourish in Washington State are those that loathe the notion of progressive taxing. Look at Ed Murray's record in the state legislature – all he did was push for legislation making the tax impacts on the less-well-off worse, and he never advocated for progressive taxing strategies.

Elsewhere in the country democrats are liberal. They try to level the playing field and work for social justice. That's essentially what “liberal” means. Here though the democrats want to increase the wealth gap between the rich and the poor by using nasty taxation policies, especially when it comes to transit.

The democratic party leaders and their functionaries now in power always push for higher sales taxes and car tab taxes for local transit taxing districts, and then work hard to impose them. Those are the singular accomplishments of Frank Chopp, Ed Murray, Greg Nickels, Dow Constantine, Larry Phillips, etc. McGinn followed suit. Constantine and Phillips now are pushing for higher sales taxes and car tab taxes for Metro, instead of questioning the management of Metro, explaining why additional tax revenue might be needed, or advocating for a revenue-raiser not designed to hit the families with the least the hardest.

Look at how “tax the people with the least the heaviest” is the unvarying theme of the democrats. King County Metro’s high taxing targeting the middle class and poor dates from its first sales tax in 1972. Then Metro doubled its sales tax in 1980. Then the democrats around here really started going to town. They controlled King County and hiked its sales taxes again for Metro in 2000, and then again in 2006. In 2011 the democrats began collecting an additional car tab tax. That completely unaccountable municipality Sound Transit was designed and operated by democrats. It got a big sales tax and car tab tax from the democrats in the state legislature in 1992, and the local democrats began imposing those with gusto. Another unaccountable local taxing district (the Seattle Popular Monorail Authority) was created and authorized to impose heavy car tab taxes. It did that for over three years, and completely wasted all that tax revenue. Now the people here are taxed heavily for transit -- a 1.8% sales tax, plus car tab taxes, plus a property tax.

That's far more regressive taxing, and higher overall taxing, compared with everywhere else in the country with substantial bus and commuter train service. People everywhere else with light rail pay little or no new regressive taxes for it (as one example).

Seattle used to impose a modest payroll tax a few years back, and then the city council repealed that progressive tax. What did it replace it with? A TBD car tab fee the democrats in the state legislature just had handed it.

What don't the democrats ever implement? Policies involving paying for transit the fair way, the way the peers do: not much new local taxing, and progressive taxing only to the extent needed.

The WA democrat party oath:

“I am a democrat, of the 'Tax the Poor' party.

“I always will strive for more sales taxes and car tab taxes, as those taxes target most heavily minorities, young households of modest means, the underemployed, and the disabled. My party in Washington won the race to the bottom of the states on that score ( http://www.itep.org/whopays/ ). Now we must put space between us and the rest of the states.”

crossrip

Posted Wed, Jan 22, 10:14 a.m. Inappropriate

"Washington State's lack of an income tax, combined with other tax incentives for aerospace companies established in 2003, have allowed the industry to prosper," the DOC bid claims.

This WA-DOC publication is a marketing brochure. As such, everyone expects it to be full of unsubstantiated claims like this.

So this begs the question: is there any evidence that Boeing or its suppliers have "prospered" due to the lack of a corporate income tax here, and/or because of the B & O tax breaks it obtained?

Let's address that question in terms of its stock price. Last year the price of a share of BA nearly doubled. Can that be attributed to low state and local taxing of Boeing?

Boeing has a very low tax operating environment in this state. That reality is correlated in a temporal sense with its recent steep stock price increase. However, the existence of such a correlation does not even imply a causal relationship exists, especially given how the local economy plays essentially no role in whether or not BA sells commercial jets, obtains fat government contracts, or otherwise secures its revenues (previously and going forward).

Anyone want to try arguing that this state's generous (to profitable companies) corporate taxation policies caused any part of that staggeringly-good Boeing stock price appreciation?

I bet whoever wrote that passage had no clue about whether or not it was true, and they stuck it in there merely because it sounded good.

crossrip

Posted Wed, Jan 22, 11:28 a.m. Inappropriate

The sales tax has certainly become the whipping boy for the enlightened. It is seldom compared to the value added tax which is a favorite of our supposedly more egalitarian counterparts in Europe. Value added tax (VAT) is a sales tax except that it has the attraction of being hidden from the consumer, the tax is paid throughout the production of goods but is blessedly invisible to the final consumer. You can see why politicians nearly everywhere find the VAT to be fair and equitable. Hiding taxes from those who pay them is an art and a science. No art with the hated sales tax. We see it, we pay it and we grit our teeth. But note that it is not levied on food or on rent and, next time you see a Porche Panamera (I just saw two last week in Seattle!), console your envy with the knowledge that the owner paid about $9K to the State of Washington in sales taxes alone. Plus licence. That big house that must've cost a $1M? all construction expenses also are subject to sales tax so the owner paid something like $100k in sales taxes. The big spenders pay big. That is not regressive. The sales tax is not so much unfair as it is relentlessly visible and that, I would argue, is good. Income taxes are less visible, frequently deducted from paychecks, only grabbing our attention in April.
Someone who has a concealable source of income (the vaunted “cash business” perhaps) can avoid some income taxes. Not so with the sales tax.
Sales taxes tend to discourage purchases and associated debt and may encourage savings, something Americans need to do more of.

I think Knute's concerns are well placed but the article could use some numbers. For example, all the people who work at Boeing pay taxes, sales taxes and property taxes among them. The economic activity that Boeing stimulates adds to our tax base; it creates a bigger pie that benefits tax collection. It must be difficult to measure this effect and I, like Knute, question whether it is going to add up to $8B but the appropriate comparison is not with what we regard as the norm but what Washington's tax collection would be like if Boeing left or commenced leaving. I think that would make tax collections and inumerable other things worse. If we need more taxes man up and raise the sales tax.

kieth

Posted Wed, Jan 22, 12:23 p.m. Inappropriate

The sales tax has certainly become the whipping boy for the enlightened.

Your suggestion that the legislators somehow accidentally adopted regressive taxation policies because they didn't know better is transparently false. In this state the sales tax was raised multiple times over the past quarter-century -- in a very deliberate fashion -- by the democrats. They were fully "enlightened" about how it targets those with the least for the largest adverse financial impacts. Those government heads were willing to impose regressive taxes at levels far higher than tolerated by their peers because that is what corporate lobbyists and public employee union lobbyists wanted them to do. That behavior is rational, and it demonstrates antipathy toward the economically-struggling individuals and families here.

No art with the hated sales tax.

Where to begin with this garbage? None of the local taxing district propositions the local legislators used as prerequisites to impose higher sales taxes and car tab taxes disclosed the amounts of those taxes they intended to confiscate. Likewise, none of those measures (or their pimps) disclosed the more fair and balanced financing plans the peers use to pay for buses and trains (none of which use anything like the levels of regressive taxes the democrats here impose). The "art" with sales tax impositions here comes from hiding their use from the public. Go ahead "kieth" -- link to a Sound Transit document disclosing how much of its .9% sales tax it intends to confiscate merely as security for the (approx.) $9 billion of long-term bonds it intends to issue to pay for part of the capital costs of the ST2 projects. You argue the sales tax is "seen" and "visible" -- show us where Sound Transit clearly describes how much it intends to confiscate.

Sales taxes tend to discourage purchases and associated debt and may encourage savings

More garbage. This “sales taxes cause people to save” claim is ridiculous. Sales taxes target people in the lower three quintiles of wealth in our community for unduly heavy financial impacts. That majority of households here does not save money any more than its peers in low sales tax states. Have data to support your argument, "kieth"? Let's see it. The lower middle class does not save any appreciable amount of money in any state, and certainly not here. All sales taxes do to the economically-vulnerable here is make buying clothes, kids' shoes, home furnishings, property repairs, health supplies, etc. more expensive. They end up taking food off tables of economically-vulnerable households. Sales taxes at the levels experienced here cause significant financial impacts to large numbers of people just for living here.

The following blog entry centers for the most part on the regressive taxing structure in the south, but it’s as bad or worse here:

http://opinionator.blogs.nytimes.com/2013/03/09/in-the-south-and-west-a-tax-on-being-poor/

That’s right – the deep south and we have identical -- and extremely illiberal – policies about taxing. That’s what the democrats here want and always call for: more taxes on being poor.

crossrip

Posted Wed, Jan 22, 1:21 p.m. Inappropriate

"your suggestion…accidental" I didn't say that, did I? in fact all your rather heated arguments seem to be saved up from other debates. Read what I said.

kieth

Posted Wed, Jan 22, 1:48 p.m. Inappropriate

I didn't say that, did I?

You implied it when you suggested the problems with heavy sales taxes became known recently among "the enlightened". The fact that regressive taxes target those with the least means for disproportionately-heavy financial impacts was known and intended by the legislators here who began authorizing them decades ago.

Read what I said.

I read what you wrote and it lacks merit. Now, link to a Sound Transit document disclosing how much of its .9% sales tax it intends to confiscate merely as security for the (approx.) $9 billion of long-term bonds it intends to issue to pay for part of the capital costs of the ST2 projects. You argue the sales tax is "seen" and "visible" -- show us where Sound Transit clearly describes how much it intends to confiscate.

crossrip

Posted Wed, Jan 22, 12:07 p.m. Inappropriate

Knute Berger writes"
"Boeing is diverting its expenses to the public purse, state government is deeply embedded with the company and our state representatives are committed to enabling that strategy. ... This is aerospace socialism — without worker control."

In my 12th grade civics class, Mr. Snow taught us the difference between socialism and fascism. Technically, the relationship Knute describes is fascism.

Sorscher

Posted Wed, Jan 22, 12:08 p.m. Inappropriate

Knute Berger writes"
"Boeing is diverting its expenses to the public purse, state government is deeply embedded with the company and our state representatives are committed to enabling that strategy. ... This is aerospace socialism — without worker control."

In my 12th grade civics class, Mr. Snow taught us the difference between socialism and fascism. Technically, the relationship Knute describes is fascism.

Sorscher

Posted Wed, Jan 22, 12:08 p.m. Inappropriate

Knute Berger writes"
"Boeing is diverting its expenses to the public purse, state government is deeply embedded with the company and our state representatives are committed to enabling that strategy. ... This is aerospace socialism — without worker control."

In my 12th grade civics class, Mr. Snow taught us the difference between socialism and fascism. Technically, the relationship Knute describes is fascism.

Sorscher

Posted Thu, Jan 23, 9:44 a.m. Inappropriate

As an entrepreneur involved in the creation and building of many new enterprises in this state my companies have paid significant B & O taxes to the State without generating a profit. New small businesses are the job creation engine in the the State of Washington, not Boeing. Yet, new small business is taxed without regard to its profitability. Not only do we subsidize the entrenched legacy corporations such as Boeing, we also indirectly subsidize the wages of the Machinists who cling to the sinecure that Boeing has historically provided.

rerickson

Posted Fri, Jan 24, 11:35 a.m. Inappropriate

Go read Boeing's RFP leaked to the St. Louis Dispatch. If we saw this letter from a third world oil company to the government of that country, we would be tisk-tisking and rolling around in a pile of our own self-righteous indignation. But coming from Boeing, we think it's just "the way the game is played." We're acting like an abused spouse. It's pathetic - we fit our own definition of a banana republic.

"Site at no cost, or very low cost, to project -Facilities at no cost, or significantly reduced cost -Infrastructure improvements provided by the location -Full support in worker training -"Entire applicable tax structure including corporate income tax, franchise tax, property tax, sales/use tax, business license/gross receipts tax and excise taxes to be significantly reduced."

Basically - "Gimme a free place, with free buildings on it that work for me, I want to pay less taxes to operate in your market than anyone else like me, and I want you to train my workers with tax dollars. Do all that, and I'll THINK about doing business with you."

nullbull

Posted Sat, Jan 25, 9:26 p.m. Inappropriate

Great article Mr. Berger. Seems like most of the Boeing news we receive from our local press are recycled press releases. Nullbull’s post made me wonder how many people even have a perception of Boeing outside of WA. I agree with the suggestion to visit the St. Louis Dispatch and check out the article he references. And these as well:

http://www.stltoday.com/business/local/congress-throws-boeing-a-lifeline-for-super-hornet/article_bba621ca-e19e-5e22-8597-473bce6b7f9f.html

http://www.stltoday.com/business/local/in-war-over-r-d-tax-credits-companies-keep-winning/article_ecc9223e-b369-5dbc-86a6-3ca3d914c951.html

Time for a number of cities across the country to put down the pom poms and start asking, “where’s da’ money bro?”

jmrolls

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