How the Boeing deal makes tax reform harder
by Knute Berger
Unlike these existing 777 models, the new 777X may not be built in Washington. Credit: Courtesy of Boeing
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.
None of this is surprising, but it is frustrating. We're limiting what we can do on the revenue side, while increasing our spending obligations to the narrow advantage of one particular industry. We're betting long-term on a regressive tax system that contributes to tax aversion and income inequality.
The investments in Boeing may be reasonable, but we're tying our hands when it comes to funding other needs and creating a system that is fair to the rest of us. Seattle state representative Reuven Carlyle, the 36th District Democrat, has pressed to end some state industry tax breaks. His current House bill would end a $40 million annual tax loophole for oil refineries and steer the revenues collected to education. The oil lobby is naturally opposed.
Carlyle has argued for a new 21st century tax system in Washington; what he describes as "A modern, globally competitive structure that lowers rates, broadens the base, eliminates exemptions and depoliticizes our political system of carve-outs."
Sounds great, but the Boeing deal, unfortunately, further entrenches a system that does just the opposite.
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