House committee holds hearing on aerospace tax incentives; Don’t forget what’s at stake

The state House of Representatives had an unusual hearing Tuesday. 

The Boeing Co. and some of its employees squared off Tuesday on whether state lawmakers should impose new conditions on the massive tax break that helped land the 777X program in Everett.

In a two-hour hearing, a Boeing executive and Everett’s mayor led the opposition to a bill requiring the aerospace company maintain a certain number of jobs in Washington or risk losing some — or all — of the tax incentives that were extended by lawmakers in 2013.

What’s unusual is reflected in the lead paragraph – imposing “new conditions” on legislation amounts to a unilateral rewrite of adopted policy. One of the commonplaces of economic development is that business requires certainty for long-range planning. HB 2638 justifies the concern, as several speakers at the hearing said.

Opponents, meanwhile, worried that while the bill applies only to Boeing, it poses a threat to hundreds of aerospace suppliers that do business with the firm. And, they said, passage would cause businesses to consider leaving the state and deter others from locating here because of worries that the state will renege on any deals it makes.

“Every business is asking … where do the clawbacks stop,” said Tim Morgan, chief executive officer of TTF Aerospace in Auburn.

Not so unusual is the (mistaken) notion that somehow the tax incentives that secured the 777X program represent a net cost to the state. We’ll get into that in a bit. 

The Herald reports on the Boeing response.

Bill McSherry, the company’s vice president of state, local and global corporate citizenship, and Everett Mayor Ray Stephanson insisted to the House Finance Committee that the aerospace giant is holding up its end of the two-year-old bargain.

“Boeing has kept its word to Washington. We are investing more than a billion dollars in the massive 777X composite wing center in Everett, as promised,” McSherry said.


Again, from the Herald,

House Bill 2638 targets the incentives which could result in $8.7 billion in tax savings through 2040 for the aerospace industry, including Boeing….It would tie the amount of incentive with the size of Boeing’s workforce in Washington. 

Crosscut has more on the hearing, also citing the widely-publicized $8.7 billion figure. So, now, let’s consider the costs and benefits of the incentive package passed in November 2013. The Washington Research Council released a report in 2014 that did just that. The report, “About that mythical $8.7 billion tax break…” puts the issue in fiscal perspective. 

A questionable Department of Revenue (DOR) fiscal note estimated that these incentives will reduce aerospace industry taxes by $8.7 billion. This has led to its being called the biggest corporate tax break of all time.

That’s a wild overstatement.

First, competitive tax policy is not a “subsidy” or “tax break” that costs the state money. It’s a pragmatic response to the marketplace, including the global competition for major industrial projects.

Second, the DOR forecast spans a 26-year horizon, far longer than is commonly used to cost out tax legislation.

Third, the premise is flawed: The state cannot forego revenues it would never have received in the absence of the incentives.

Read the whole thing. And consider the conclusion:

Not subsidies, these tax adjustments offset extraordinarily high taxes on commercial airplane manufacturing, enabling Washington to prevail in the intense interstate —and international—competition for industries that can transform regional economies. The policy made sense a decade ago and still does.

We understand the state is under significant fiscal pressure. That makes it all the more important for lawmakers to consider the long-term consequences of proposed action on tax policy. The proposed legislation risks having precisely the opposite effect of what the backers intend.