Building an Economy that Works for Everyone

Death by a thousand cuts: A historical look at Washington’s tax exemptions

Seattle's Hooverville

Seattle’s Hooverville

Early in the 1930s – what would later become known as the Great Depression – Washington’s legislators faced a mounting problem. Property tax collections, which were the main source of state revenue, dropped precipitously as property values fell and people lost their jobs. Washington’s economy stalled, and at the time they were needed most, Washington struggled to provide critical services to feed and house the unemployed.

In 1933, FDR’s New Deal began to stimulate the economy into recovery, but Washington’s elected officials understood a long-term problem underlay the short-term shortfalls caused by the Great Depression. Washington’s economy was shifting from agrarian to industrial. The tax code needed to be updated to reflect the new reality, and prevent systemic problems after the recovery.

Following a series of incremental reforms by the legislature and the overturning of a voter-approved income tax, the Washington state legislature enacted the Revenue Act in 1935.

The Revenue Act shifted Washington’s principle form of taxation from property taxes to excise taxes – reflecting Washington’s emerging role as an industrial economy. Following the economic stimulus of FDR’s New Deal and WWII, Washington’s economy got back on track, and Washington’s tax structure functioned well for decades.

Enter the 21st century, and once again times are changing. Once industrial, Washington’s economy has relied on technology and software as economic drivers for the past several decades. Yet the tax code remains unchanged.

But this time around, Washington faces a two-fold problem. In addition to our outdated tax structure, Washington’s 500+ tax exemptions (and counting) are doling out more than $6.5 billion in unscrutinized public funds each year. These exemptions, some of which have been on the books since before WWII, range from the arcane to the asinine and are sucking public funds away from critical programs and infrastructure.

However, some legislators are taking action. Facing a nearly $5 billion shortfall over the next two years, there is a strong push by some legislators to cut the weight of ineffective tax exemptions. One of those legislators, Representative Mike Sells (D-Everett) authored this column in the Everett Herald, calling for more accountability for state tax exemptions. From the article:

At a time when we are considering kicking thousands of people off the Basic Health Plan, cramming more kids into classrooms, and drastically reducing critical services for seniors, we need to scrutinize every dollar we dole out on tax exemptions and compare whether the benefits of tax breaks outweigh the benefits of the education and health care services we are proposing to cut.

That sounds like a practical way we can make responsible budget choices to me – read the full column here for yourself and tell me what you think of the approach.

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