Three Reasons Why a New Tax Break for Manufacturers Is Bad for Washington State

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Three Reasons Why a New Tax Break for Manufacturers Is Bad for Washington State

By - July 3, 2017

In the final hours of intense, behind-the-scenes negotiations over the recently enacted 2017-19 state budget, lawmakers in Washington state snuck in a major new tax break for manufacturers. This new tax break, which is one of 13 new or extended tax breaks included in Senate Bill 5977, would reduce the business and occupation (B&O) tax rate applied to Washington state-based manufacturers from the current rate of 0.484 percent to 0.2904 percent over the next four years. 

This Senate tax break bill is one of several bills that still need to be signed by Governor Inslee in order to become law. It is bad policy and it should not be enacted. Here are three reasons why:

  1. Once fully implemented, the new break will eliminate $39 million per year in funding that would otherwise support schools, health care, and other investments that form the foundation of a strong state economy. Structuring this tax break to gradually phase in allowed lawmakers to balance the state budget over the next four years. But after 2022, the mounting costs of this tax break will make it ever more difficult to balance the budget and adequately fund schools and other priorities.
  2. It includes no accountability to the public. It’s unacceptable that lawmakers neglected to apply any of the standard transparency and accountability provisions applied to other recently enacted tax breaks to this tax break – such as identifying a specific public purpose or goal, designating metrics to assess its success or failure in achieving those goals, or setting an expiration date.
  3. It will largely benefit shareholders and out-of-state consumers. The new tax break might allow manufacturers to very modestly reduce the prices of the goods they sell, but that would mostly benefit consumers in other states and countries where those goods are primarily sold. Manufacturers could also use the tax savings to pad their profits for the benefit of their own shareholders. Either way, that means millions of dollars in resources that would otherwise be used to support communities throughout Washington state will be diverted to other states and countries.
About Andy Nicholas, Senior Fellow

Andy specializes in state budget and tax policy. Since joining the Budget & Policy Center in 2009, he has served on a Legislative Task Force on Tax Preference Reform and has conducted numerous analyses of Washington state’s tax code.

Read more about Andy