Building an Economy that Works for Everyone

Ignoring the elephant in the Rotunda: State services suffer while tax breaks go unexamined

If you can’t see this elephant, you might be missing billions of dollars in tax breaks in Washington’s budget, too.

Governor Gregoire “hates” her 2011-2013 budget proposal, and it’s no wonder: it cuts $4.6 billion by, among other things, eliminating funding for class size reductions, ending the state’s Basic Health Plan (BHP), ending assistance to the disabled and closing state parks. But not to worry: tax breaks for nose jobs and airline fuel are still on the books!

With unemployment stuck at around 9%, more Washingtonians will need help to weather the ongoing economic storm. More than 30,000 people have exhausted their state unemployment benefits, leading to more applications for food stamps and Medicaid — while the BHP has a rapidly growing waiting list.

And yet, when legislators convene in January, many will try to ignore the elephant in the Capitol Rotunda: tens of billions of dollars in tax exemptions that have been carved out of the state budget over the years, with the helpful guidance of corporate lobbyists.

The Governor can’t unilaterally bring order to the morass of tax exemptions in Washington state’s tax code. But legislators do have a choice this January: They can choose to scrutinize tax exemptions as closely as they do every other budget item, and make sure every tax preference and subsidy proves to have a positive return on investment for Washington taxpayers.

Here are three tax exemptions that merit much closer examination (there are many more!), along with examples of the kinds of public services that could be restored either by ending the exemption outright or tightening the rules for using it:

This tax exemption…: …means Washington can’t afford to:
Sales tax exemption on items used in interstate commerce. Cost: $609 million
Air, rail, and water transportation companies engaged in interstate or foreign commerce are exempt from sales tax on fuel and other items. U.S. Supreme Court has ruled that states may tax such items, and many do. JLARC review in 2008 found no clear purpose for the exemption.
? Restore funding to the Washington Basic Health Plan, which provides subsidized health insurance to 66,000 working families. Eliminating program also ends $117 million in federal grant money to the program. Cost: $230 million

Restore funding to both the Disability Lifelife and the Disability Lifeline Medical Program
, which serves temporarity disabled individuals who are unable to work. Cost: $327.2 million

Restore cuts to Department of Corrections
staff and programs at prisons, headquarters and in community supervision. Cost: $51.6 million
Sales tax exemption on custom software (taxed in 11+ states). Cost: $261.7 million
Would not include “canned” software such as Microsoft products.
? Restore funding for K-4 class size reductions, cut in the 2011-13 budget. Cost: $216 million

Restore the Highly Capable (‘Gifted’) program
, which provides educational opportunities to challenge highly capable students. Eliminated in 2011-13 budget. Cost: $18.6 million

Restore Medicare Part D co-payment
subsidy; eliminated in 2011-13 budget. Cost: $16.4 million.

Restore school-based medical service reimbursements. Eliminating this program would no longer reimburse schools for medical services to Medicaid-eligible children. Cost: $11 million
Sales tax on cosmetic surgery. Cost: $13.5 million ? Restore funding in 2011-13 budget to Early Learning, including the Career and Wage Ladder, which fosters professional development and teacher education. Cost: $14.7 million
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