Tax Incentives: Review or Remove

Washington state’s tax code allows for over 430 tax preferences which provided $46 billion dollars in savings for various taxpayers during the 1999-01 fiscal biennium. For the most part, tax preferences in Washington are not subject to a comprehensive review process that assesses their effectiveness.

Seven tax preference programs are scheduled to expire in the 2003-05 biennium. Many of these tax breaks were implemented with the goal of improving the local economy by creating jobs. However, there is little data available to assess whether or not they have achieved this objective.

Lawmakers have recently introduced several bills that would automatically extend all or some of these programs, despite a $2.4 billion budget deficit. Extending these tax preferences will cost the state an estimated $94.6 million and local governments $23.8 million in lost tax revenue for the 2003–05 biennium. This amount would increase to $317 million in the 2005-07 biennium.

This loss in revenue needs to be evaluated alongside proposed cuts, including cuts to early education, K-12 and higher education, all of which are key components to a  thriving regional economy. In addition, legislators should adopt a system for evaluating the effectiveness of the numerous tax preferences that currently exist.

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