OPINION
If tax breaks don’t work, it’s clawback time
By Sen. Maralyn Chase
Most state government programs are under regular review – if they don’t work, they don’t last.
The same cannot be said about tax expenditures – tax breaks given to corporations and placed on services in perpetuity. Many of these expenditures have been on the books for years. Some work, some don’t, some continue to serve a purpose and others are no longer necessary.
Whether they’re effective or not, these tax breaks have cost the state literally billions of dollars over the years and continue to cost taxpayers approximately a billion dollars each biennium.
The way things are set up in Olympia, the public and the legislature has no way of ending those expenditures which have served their purpose or were of a questionable purpose to begin with.
Recently, my colleagues in the Senate proposed several bills aimed at closing many of these loopholes. I support all of these bills and plan to introduce amendments for each one. These amendments will give lawmakers a mechanism with which to test these tax expenditures – essentially an audit – to determine whether or not the break is providing a net benefit to our state’s taxpayers.
If it is learned that the tax subsidy no longer serves its purpose or the entity hasn’t delivered a net benefit to the public whether through the number of jobs its created or employment hours its provided, the state will be able to recoup money through a so-called “Clawback” provision.
If the audit shows the tax break is serving its purpose – it will remain in place. It’s that simple.
The concept of a Clawback may seem like common sense. However, with the way many subsidy deals are structured, companies often face no penalties and the state has no course of action if they fail to deliver on promised jobs or investments.
The result of such lax enforcement is that taxpayers end up subsidizing companies for things they don’t do. With a $5 billion budget shortfall we need to account for every penny and make every dollar go further. Giving away billions of dollars in unchecked taxpayer money makes less sense than ever.
Clawbacks should not be viewed as a threat to business. Rather, they should be viewed as a tool that sets out clear expectations for parties on both sides of the table. If the rule is simple, fair and evenly enforced, businesses will accept it.
This is an issue of accountability and transparency. Taxpayers deserve to know what their money is paying for and legislators need to have the tools to get that money back if it’s not doing what it was intended to do.
The fact of the matter is, with the Tim Eyman-backed I-1053, we have little course of action.
Mr. Eyman’s initiative, which requires a supermajority vote to make any modifications to our tax code including the closure of tax loopholes, has left us unable to end or even modify any of these subsidies.
Below are a few of the tax breaks currently on the books:
- Elective plastic surgery
- Private airplane ownership
- Out-of-state coal purchases
- Non-organic fertilizer
- Heating and outfitting chicken coups
- Golf and country club membership fees
- Mortgage-interest earning for Wall Street banks
These few examples are literally millions upon millions of dollars worth of tax breaks that could be going toward reducing class sizes, saving the basic health plan or providing home care for our seniors and citizens with disabilities.
More than 20 states currently have some sort of Clawback provision on the books. If we’re really serious about fiscal responsibility, Washington State should be the next in line.
Sen. Maralyn Chase (D-Shoreline) represents the 32nd Legislative District, which includes north King and Snohomish counties.
roseviolet
May 13, 2011 at 10:48 am
As a quick side note, almost as good a question would be how on earth did some of these tax breaks even get ON the books in the first place. Seriously golf and country club membership fees? Mortgage-interest earnings for Wall Street Banks? ELECTIVE plastic surgery? Honest justification of benefit – and at a level, in a manner understandable to the people – should be a requirement even to get such proposals considered. Tax breaks shouldn’t be given unless there’s clear reason that they will lead to a notable bump in jobs or area income. Just because a couple of people will make (more) money or a few jobs MAY be created isn’t reason.
More importantly, you’re dead on about Eyman’s initiative. What many don’t realize about California is that much (very likely close to all) of that state’s financial trouble traces back to Prop 13. That California law is very similar to Eyman’s initiative in the requirements for supermajorities to pass anything that even looks like a “tax increase” or “fee increase” – no matter how badly the state needs the money or how clearly the increase would be justified and/or appropriate. Ultimately this means it only takes something like one or two in the entire California Legislature to deadlock budgets over trivialities or to block very needed, very appropriate tax matters. But until “no new taxes” ceases to be repeated like a religious mantra, we may be doomed to keep repeating history until we learn that lesson from pain since we’re clearly not learning it from observation.
WendyD
May 13, 2011 at 9:33 pm
Another common sense piece of legislation supported by Sen Chase. Thank you for representing us so well.
TardyKnows
May 20, 2011 at 9:17 am
Senator Chase mentions I-1053 as a bulwark against cancelling a tax exemption. I believe that she misunderstands what happens when a tax exemption is cancelled. There is no change in the tax that was exempted. For instance, if the tax rate was .00025 when the exemption is granted, that is the rate in 2011. And there is no increase in State’s revenue because all other tax payers who did not get an exemption have been paying the cost of the exemption. Mr Eyman, being a businessman, understands tax shifts very well. But he did not make clear to his constituency that follow the money does not stop with core services such as education, transportation, public safety, etc. No indeed. Expenses include tax exemptions. See Senator Schoesler’s motion to stop tax deferrals in order to “save” 600K. And all done with a simple majority vote.