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New Package of Senate Bills Would Reform Tax Breaks

Posted by Andy Nicholas at Apr 14, 2011 03:30 PM |
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Today a package of bills was introduced in the State Senate that would give voters (via a referendum clause) an opportunity to restore funding for essential public services and to improve rational decision-making in the state budget process.

We'll start with SB 5945. Information on the other bills will follow as details emerge.

Senate Bill 5945

Senate Bill 5945, which was sponsored by Senator Rockefeller and 15 other Senators, would restore about $340 million in funding for education, health care, and other core public investments by curtailing a host of special tax breaks.

The measure would:

  • Narrow a deduction certain businesses claim on investment income: Under current law, most businesses are allowed to deduct all income that comes from interest, dividends, and other types of investments. Senate Bill 5945 would cap the amount of deductable income at $250,000 per year, meaning investment income that exceeds that amount would be subject to the state business and occupation (B&O) tax.
  • Eliminate a costly deduction claimed by large out-of-state banks: The measure would eliminate a deduction on home mortgage interest income that predominantly benefits large banks and financial institutions headquartered out-of-state.  By limiting eligibility to banks that operate in 10 or fewer states, the measure would preserve the deduction for small community banks.
  • Institute small across-the-board increases to all preferential business tax rates: Currently, there are more than 20 preferential business and occupation (B&O) tax rates.  These preferences benefit a variety of industries and activities, ranging from commercial aircraft manufacturers to day care providers. Without singling-out any particular activity or interest, Senate Bill 5945 would create badly-needed resources by incrementally increasing all preferential B&O rates.  It is important to note that all of these preferential rates would still be lower than the standard B&O rates paid most businesses in Washington.

This measure would go into effect should voters approve Senate Bill 5944 (discussed below) in November.

Senate Bill 5944

Sponsored by Senator Murray, Senate Bill 5944 would place a referendum on the November ballot that would clarify Initiative 1053. If approved, the measure would allow policymakers to modify, clarify, or eliminate special tax breaks with a simple majority vote of the legislature – the same standard applied state spending on health care, education and other important priorities.

Under I-1053, it is extremely difficult for lawmakers to cut state spending on special tax breaks, due to the onerous supermajority (two-thirds) vote requirement. However, state spending on our public health and education infrastructure can be cut with a simple majority vote of the legislature.

As we’ve written previously, placing tax breaks in special, protected category creates an unbalanced budget process that undermines rational decision-making by policymakers.

Under SB 5944, a supermajority vote would still be required in order for policymakers to increase the state sales tax rate or other general tax rates.

Senate Bill 5932

Senate Bill 5932 (sponsored by Senator Kohl-Welles) would substantially limit a B&O tax deduction claimed by golf clubs, country clubs, automotive clubs, and similar organizations. The bill would change the law so that the deduction, which applies to income received from membership fees and dues, would only be available for non-profit organizations. In addition to eliminating the deduction for for-profit clubs, the measure would also repeal the sales tax exemption on dues and fees paid the these organizations.

In total, SB 5932 would generate about $4.5 million in new revenues during the upcoming 2011-13 biennium. All of these resources would be dedicated to hearing and vision services for Washingtonians in need of medical assistance programs.  The measure would take-effect if Senate Bill 5944 (described above) were approved by voters in November.

Senate Bill 5946

Sponsored by Senator Ranker, this measure would give the Department of Revenue the authority to collect delinquent business taxes from business owners or corporate officers. (The Department is currently barred from collecting certain business tax liabilities from individuals.)

If enacted, the measure would recover about $15 million in unpaid taxes in the coming biennium.

Senate Bill 5947

Senate Bill 5947, which was sponsored by Senator Eide, would eliminate the following tax sales tax exemptions:

  • Sales of semen for artificial insemination of livestock;
  • Use of personal property in single trade shows;
  • Propane or natural gas to heat chicken structures; and
  • Chicken bedding materials.

In total, repealing these exemptions would generate about $2.5 million in new resources in the coming biennium.

Stay tuned to schmudget for more details and information.

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