Building an Economy that Works for Everyone

Do Washington’s corporate tax exemptions really deliver public value?

Is it wise to continue subsidizing major corporations with billions in profits while Washington state languishes in economic crisis? Seattle Times’ columnists Jon Talton and Brier Dudley took on that very question over the weekend, and here’s what they found.

By way of background: Thanks to a constant barrage of corporate lobbying, the Washington legislature has written hundreds of special rules into the tax code – many dating back to the 1930’s. Today these corporate tax exemptions are worth about $4 billion.

Now, if times were more prosperous, all those sweet deals might have slid under the radar like they usually do. But with $5 billion+ in budget cuts over the past three years and tax receipts down another $5 billion in 2011-13 thanks to the recession, these tax expenditures are getting much more (well-deserved) scrutiny lately.

Enter Talton and Dudley.

Talton recognizes the tendency for businesses play states off against each other in a ‘race to the bottom’, as companies seeks additional tax incentives for locating in that state. He cites the example of, in which the company located two warehouses in Tennessee in exchange for $12 million in public money.

Is that all we should expect from corporations, asks Talton, or do they have a responsibility to give back to society?:

Amid all the discussions of government belt-tightening and Americans views that taxes should always go lower, a fundamental question is lost: What about the commons? In other words, the infrastructure, education, parks and other public assets enjoyed by all and play a big role in competitiveness. Do corporations, particularly transnational giants, have an obligation commensurate with their size and profits to these American resources which they use, too?

… “We need to ask ourselves if adding to the gross domestic product is the only, or even the primary, measure of our society? If a tax increase slowed the economy today but financed a college education for every student with top grades, would it be worth it?”

Over time, these exemptions mean corporations do less to contribute to the public good, and instead use their political power to pad their bottom line and improve profits for shareholders.

Brier Dudley takes aim at that very process:

Are more incentives needed to encourage companies like Microsoft, Intel, Apple and Google to innovate? Can we afford to give them more breaks and simultaneously spend more on education? They’re already seeing benefits from a federal tax credit for research and development activities… They also benefit from R&D tax breaks in Washington state. Those breaks will save tech companies $145.7 million in the two-year period ending in July.

… Nelson [a former state representative] thinks there should be a means test [for corporations taking subsidies], similar to asking welfare or public-health recipients to prove they need the assistance. … If “there’s a means test for individuals, for people that don’t have much means, then there should be one for big corporations that have billions sitting in the bank,” he said.

While Washington’s budget is basically re-written and re-evaluated every two years, corporate tax breaks, once passed by the Legislature, are never seen in public for a vote again. With state spending under the microscope, it’s important that state lawmakers examine whether tax breaks for big business really add public value for Washington taxpayers.

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