House tax work group releases final report with no specific reform recommendations; calls for an expanded effort in 2019.

The House Task Structure Work Group has released its final report. We wrote last summer about the group’s efforts, which included a series of public meetings “to facilitate public discussions throughout the state regarding Washington’s tax structure,” as described in the authorizing legislation

The bottom line is there is no bottom line yet. The 49-page final report consists consists of many pages of small group reports, reproductions of flip charts, and survey responses. But the group agreed to just four recommendations, none of which actress specific tax policy changes for the 2019 Legislature. 

Here they are in full:

The co-chairs of the work group provide the following recommendations:

Recommendation #1:

The Legislature should reauthorize the Tax Structure Work Group for the 2019-21 biennium and expand membership to include multiple members of the House of the Representatives, the Senate, and stakeholders including, but not limited to: representatives of traditionally low-margin businesses and those paying standard business and occupation tax rates; tax preparation professionals (e.g., certified public accountants, tax attorneys, etc.); and non-profit organizations conducting tax policy analysis.

Rationale: More than 94% of survey respondents supported the continuation of the Tax Structure Work Group, and the named stakeholders to add were rated the highest value additions in the survey (combined score of “very” and “somewhat” valuable).

Recommendation #2:

The Tax Structure Work Group should develop policy proposals addressing key challenges of the Washington State tax code including, but not limited to: the regressive nature of the tax code; the negative impact of business and occupation tax on small, low-margin and/or start-up businesses; the changing economy and the need to modernize the tax code to reflect it; and the excessive number of tax preferences and exemptions. For the purpose of recommendations, the Tax Structure Work Group should first create an agreed upon definition of “regressive.”

Rationale: The named issues to tackle were the highest ranked issues by survey respondents. The need to define “regressive” was raised in the Seattle TSWG meeting and the co-chairs agree that this seems like a critical first step.

Recommendation #3:

To inform the Tax Structure Work Group’s policy proposals addressing key challenges of the Washington State tax code, economic modeling or other comparable analysis should be conducted that may include: replacing the business and occupation tax with an alternative taxing mechanism such as corporate income tax or margins tax; replacing the 1 percent revenue growth limit with a limit based on population growth and inflation; replacing a portion of the property tax with a capital gains tax; and replacing other existing revenue sources with alternative revenue sources.

Rationale: The named types of economic modeling were the highest ranked by survey respondents. The final sentence is based on an agreement between Reps. Nealey and Frame that leaves it more open ended so other revenue sources (existing and not) could be examined as well.

Recommendation #4:

The Tax Structure Work Group should continue direct engagement with taxpayers and other stakeholders as part of the work group, refining the approach and type of activities used in 2018. Suggestions include: continue holding meetings across the state (not just in Olympia), offering more than four meetings for the public to provide input; offer meetings during the day and consider adding evening options; and strengthen outreach and notice to engage a broader set of taxpayers, though consider segmenting activities by similarly-interested and informed participants for more focused and informed input.

Rationale: More than 94% of survey respondents liked having meetings across the state, but more than half responded that four meetings was not sufficient for public input. More than 54% said daytime meetings worked, but the same percentage suggested adding evening meetings. Finally, more than 65% suggested additional outreach to invite a broader set of taxpayers, but comments reveal the broad mix of participants made conversations unfocused and that narrowing who is in the conversation might help address that.

Notice that the rationales supporting the recommendations flow from the survey respondents. It’s a small and undoubtedly unrepresentative sample of state taxpayers. (Note: The work group does not claim the surveys represent public opinion; they represent the views of those able to make the meetings.)

Meeting attendees were sent a link to a follow up survey to provide an additional opportunity to communicate feedback to the House Tax Structure Work Group members. The survey link was mailed to attendants who provided their email addresses on November 8, 2018 and closed on November 23, 2018. Sixty-seven individuals responded to the survey. ‘

Sixty-seven. There are all sorts of reasons for relatively low participation in the public hearings and the limited survey responses. And, as the group concludes, more discussion of tax policy will ensue in the coming months. That will happen regardless of whether the group is reauthorized for the coming biennium. 

So far, as expected, consensus on tax reform has been hard to achieve. Maybe because things are working pretty well right now.