Aerospace tax incentives are working; the state should honor its commitments

In November 2013 the Legislature extended aerospace tax incentives as part of a strategy to encourage The Boeing Company to locate wing production and final assembly of the 777X in Washington. The company subsequently did so, assuring a continued long-term manufacturing presence in the state by Boeing and its many suppliers. Call it a win.

Yet, from the moment legislators acted, the incentives have been the subject of criticism. An important Washington Research Council policy brief analyzed how the incentive package has been mischaracterized as an $8.7 billion tax break

A competitive tax policy is not a “subsidy” that costs the state money. It is, rather, a pragmatic response to the marketplace, including the global competition for major industrial projects. Tax policies adopted in 2003 were essential for securing the 787. Extending those policies in 2013 helped to win the 777X.

It’s a detailed report, worth reading in its entirety. This session, some legislators are looking to rewrite the agreement, tying the incentives to some baseline employment numbers. HB 2147 was heard last Friday. Research Council president Lew Moore testified that the bill violates three tax incentive principles. (Video here.)

First, a tax incentive should foster the long term success of the recipient, which will secure jobs and revenue, directly and indirectly. Our state’s Office of Financial Management estimates Boeing’s tax incentives will actually create $21 billion in additional revenue. Boeing’s family wage jobs are estimated to create approximately three additional jobs each. Second, the incentive should create certainty and build trust, itself an incentive to stay in our state. And third, the incentive should ensure the state’s competitiveness relative to other states in terms of taxation to keep and grow jobs here. 

The Everett Herald carried pro-con pieces Sunday. On the pro side is HB 2147 sponsor Rep. June Robinson. Taking the opposing view are Chris Knapp and Troy McClelland, respectively chair and president of the Economic Alliance Snohomish County.

EASC makes the critical points:

It is, first important to note that the tax incentives in question are working as they were intended. They’ve already proved to be a valuable, important economic growth engine for our communities and state, even during the nation’s worst recession on record. According to the state’s own estimate the incentives, introduced in November 2013, will generate more than $21.3 billion in state and local tax revenue over 16 years.

…The proposed constrictive legislative changes would hurt employers other than Boeing. In 2013 alone, 458 other Washington aerospace companies used one or more of the existing incentives to help create or retain thousands of jobs in our state, ensuring a strong future for our local aerospace industry.

And, finally,

If the state reneges on a commitment that is delivering so positively, as promised, why would Boeing or for that matter any industry regardless of cluster, trust our future commitments? Simply put, they would not.

…Trust binds people, businesses and legislators together. These proposed legislative constraints would do the opposite.

More on all this in the Puget Sound Business Journal.