Washington had 567 tax exemptions on the books at the end of 2007. These tax breaks added up to $15 billion in lost state and local revenue that could improve education, health, the environment, transportation, or other public services.  Providing piecemeal tax breaks is a poor economic development strategy and has made Washington’s tax structure even more unfair and inadequate for the needs of the 21st century economy. Washington’s families, workers, and businesses would be better off with a modernized tax structure and well financed, high-quality public structures and services. The economic downturn of 2008 and projected budget deficits provide an opportunity for Washington’s policy makers to develop a more coherent tax policy.

Key Findings

Of 567 tax breaks, 302 would result in new public revenue if repealed.

• The state would gain $12 billion in revenue, and local governments would gain almost $3 billion.
• The top 20 tax breaks account for most of the lost revenue. These include popular exemptions that benefit all citizens, such as the sales tax exemptions on food and prescription drugs.

Business tax breaks have proliferated since the 1990s.

• In the five legislative sessions from 2003 through 2007, the legislature passed 77 business tax breaks that reduce state revenue in the 2007-09 biennium nearly $600 million.
• Aerospace industry tax breaks cost the state $207 million in 2007-09.
• High tech and rural investment incentives that were renewed in 2004 cost the state another $200 million.

Washington’s legislature has taken steps to improve accountability for tax breaks, but must go much further.

• Investing in high-quality education and infrastructure is a better route to sustainable economic development than piecemeal tax breaks.
• Washington needs a fairer and adequate tax structure suited to the modern economy, not new tax exemptions.