Washington state’s tax code is so full of holes it’s a doily

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OLYMPIA — Gov. Jay Inslee took off in the summer-in-spring sun last weekend for a long ride to Centralia on his vintage Cinelli road bike.

It probably was a good time to be out of town.

His $1.2 billion education funding plan released last week makes him, by design, a political target. As he explained in the governor’s office this week, he intended to have “cleared space for legislators” to find a viable path toward more education funding.

“They now have $1.2 billion of room to maneuver,” said Inslee. “I think leadership does involve getting out ahead of the curve on occasion, and that may be where we are. It’s the proper role for a governor.”

To borrow a baseball metaphor, Inslee deserves credit for framing the strike zone.

Washington’s students, from preschool to grad school, ages 3 to 23, require more money than the existing budget can afford, short of eviscerating social services. That means between $800 million to $1.4 billion in new education spending this session.

Inslee found it by closing 11 tax preferences and making temporary surcharges permanent. It is a credible plan, without gimmicks.

It is also so big it was easy for the Republican-dominated Senate majority to label it tax-happy liberalism. His overall budget proposal is an 11 percent increase, the biggest jump since 2005. It also doesn’t bank any savings from his much-touted lean management ideas.

The plan was limited by his 2012 campaign pledge to not raise new general taxes. But he did say, over and over, he would target specific tax exemptions.

This could be a moment in Olympia to talk about how those exemptions got there in the first place. Instead, Inslee frames his proposal around revenue for schools, not reform of the tax code.

That’s too bad. Washington’s tax code is a doily. It is so full of holes, you have to wonder what the heck it’s supposed to do sitting on grandma’s table.

Some 640 exemptions to sales, property, excise and business taxes have calcified over decades. Those preferences save their recipients $29 billion, about double the annual state budget.

Aerospace, timber, agriculture and tech have huge, industrywide preferences. We also give precise exemptions for crop dusters and horse racing, dried peas and Christmas trees.

There are five different rates in the fish-tax code (Who knew we had a fish tax?) alone. Chum salmon are taxed higher than sea urchins, and both higher than oysters. Mackerel and tuna are exempt entirely, costing $289,000 a year. We also have a special break just for fish cleaning.

“That must have been soooome lobbying,” said Rep. Reuven Carlyle, D-Seattle, shaking his head at the fish tax breaks.

Carlyle, chair of the House Finance committee, has hammered on the fuzzy logic of unjustified tax breaks for years.

Beginning in 2007, the Legislature wisely focused its in-house auditors, the Joint Legislative Audit Review Committee, on tax preferences, and set up a companion Citizens Commission on Tax Preferences as a second, cold-eyed reviewer. Together, they have recommended $197 million in preferences to be killed or allowed to expire.

Once in the tax code, lawmakers seem allergic to reconsidering preferences. JLARC recommends termination of 34 questionable tax breaks. The Legislature followed the auditors’ recommendation just once.

Some preferences make good sense. What’s needed — and has been advocated by Carlyle and Senate Majority Leader Rodney Tom, D-Medina — is an automatic sunset provision to tax breaks. After five or 10 years, a recipient — including newspapers, which pay a lower business-tax rate — should have to trot back to Olympia to make their case.

When I asked about this idea, Inslee seemed to reluctantly agree.

“I wouldn’t be adverse to saying anything we create should automatically be up for sunset review.”

He has framed the strike zone. Lobbyists for auto dealers, retailers, software geeks, oil refiners and brewers — among the industries gored by his revenue proposal — will be aiming fast balls at his head for a while.

Hopefully that clears some space for lawmakers to work on revenue, and reform.

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