The false promise of tech companies funding higher education

How one clause created a statewide budget shortfall

Just last year, Microsoft and Amazon were heralded for agreeing with the Legislature to increase their taxes to fund free tuition for college students.

That narrative has proven false in just a few months.

It is false because the tuition-free grant only extends to students in families with income less than 55 percent of the median income – that is $51,000 for a family of four. Only one-fifth of the students in the state public higher education system would qualify.

Above this threshold, the assistance tapers off significantly. For students in families with incomes between 75 and 100 percent of the state’s median income, about $70,000 to $93,000 for a family of four, the grant will cover only 10 percent of tuition and fees. 

It won’t provide any financial assistance for students above the median income. That is, it won’t help a majority of students in our public higher education system. In fact, their tuition will go up by 2.25 to 2.5 percent.

But now we have another problem.  It seems that the projected revenue and costs don’t match up.  The state is short hundreds of millions of dollars for this program. Hard to believe, when some of the world’s biggest tech corporations, including Microsoft and Amazon, are anteing up.

What happened?  At first, this bill included an increase in the Business and Occupation tax for businesses with over $25 billion in global revenues, and an even larger B&O increase for businesses with over $100 billion in global revenues. But somewhere during the legislative pathway a clause was snuck into the bill that changed everything.

This clause said that none of these huge companies would pay more than $7 million a year. For context, $7 million is three one-hundredths of a percent of Amazon’s 2018 revenue. With this cap, not enough revenue is generated to fund the grant assistance that was promised.

Just like most taxes in Washington state, this clause makes smaller businesses pay substantially higher portions of their revenues than the larger corporations. Smaller businesses are paying the B&O tax of 1.8 percent, while the companies with more than $25 billion in revenue will pay a surtax of between .005 percent and .01 percent.

Now the Legislature is twisting and turning, trying to fix the revenue shortfall.  The latest bill, written by State Senator Jamie Pedersen, SB 6492, retroactively repeals the additional tax on the big companies completely, even the $7 million, and instead increases the B&O tax on all businesses with over $1 million of revenue.

Somehow, the Microsoft and Amazon media machine has fomented a narrative that they are funding higher education access, when almost all of the funding will come from other – smaller – businesses.

This isn’t the first time a big tech company has left the state budget in a lurch. Year after year, Amazon receives enormous tax deferrals from the state. Between 2013 and 2017, Amazon worked its way out of more than $220 million in state and local taxes. In 2017 alone, Microsoft received $22.6 million in tax exemptions and $130 million in technology sales and use tax deferrals.[1] These funds could support our schools, hospitals, and public services. Instead, they’re further inflating the pockets of wealthy companies.

The good news is that there is an easy way to fix the funding shortfall: simply delete the clause that puts a $7 million ceiling on the 40 companies including Amazon and Microsoft that have global revenues in excess of $25 billion. That would fully fund the College Promise program and actually make Amazon and Microsoft stick to their own words that they want to fund higher education for students in Washington.

 

 

[1] E-mail from Don Guttman, Department of Revenue, 5/23/2019 to John Burbank

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