Panel of tax and business climate experts review Washington’s tax structure; cite strengths, weaknesses and uncertainty

Washington’s tax system, often maligned, works pretty well, according to a panel of experts speaking at last week’s Association of Washington Business Policy Summit. (Watch the TVW video.) TJ Martinell reports at The Lens,

A state House work group has held public meetings this year to discuss problems with Washington’s tax structure and potential regulatory changes. While those discussions may lead to recommendations to the House Finance and other committees, legislators should be cautious about any new tax proposals they make, as tax policy is such a key factor in a states’ business climate.

That was one of the takeaways from a Sept. 19 panel at the Association of Washington Business’ 2018 Policy Summit in central Washington. The panel consisted of Tax Foundation Senior Policy Analyst Jared Walczak, state Department of Commerce Managing Director for Business Development Allison Clark and Professor Jeffrey Gramlich at the Washington State University’s Hoops Institute of Taxation Research and Policy.

The House work group continues what may seem to many like the never-ending story of tax reform efforts, which contribute to a concern raised by Walczak.

…Walczak said he’s “not sure they (businesses) always have that certainty here in Washington” due to frequent tax discussions and debates. “Most of them go nowhere,” but “each of these I think is a concern for businesses. Will my sector be targeted? How do you plan for this level of uncertainty, which doesn’t exist for most states?” 

He also repeated the Tax Foundation criticism of the B&O tax that he made in written testimony to the work group last summer, as we wrote in July.

In his written testimony to panel members, he noted that the state’s most recent B&O tax exemption study revealed “many of these exemptions are more narrowly tailored efforts to do what the different rates are supposed to accomplish: keep the tax from becoming an impossible burden for businesses with low margins or long production chains.”…

However, he adds that “the B&O’s shortcomings notwithstanding, however, Washington has a highly competitive tax code” and “relative revenue stability.”

Again last week he pointed out the system’s overall strengths, as The Lens reports.

“There is a lot that Washington has going for it,” Walczak said. “For some it’s very affordable, it’s very attractive.”

One of the attractive features of the tax structure is the absence of a personal income and capital gains taxes, as Clark commented (video here). Jason Mercier of the Washington Policy Center writes

During a tax panel at the Association of Washington Business 2018 Policy Summit this week, the state Department of Commerce said the lack of a state income tax, including no capital gains income tax, “is great marketing” for Washington. If an income tax is imposed, Commerce said that would mean “one less tool that we have in our economic development tool box.”

This statement should come as no surprise. For years the Washington Department of Commerce has made the state’s lack of an income tax a major selling point for its “Choose Washington” campaign

“We offer businesses some competitive advantages found in few other states. This includes no personal or corporate income tax.”

The AWB Olympia Business Watch blog adds Clark’s support for strategic tax incentives.

The state’s advantages are many, she said: A great workforce, outstanding natural resources, clean and inexpensive power, and state incentives for companies that can be applied strategically.

“I would certainly say if we were to expand any number of those types of incentives that are either sector-based or location-based, that could be quite strategic in growing either sectors or industries in certain areas of the state,” she said.

We expect much more discussion of tax policy in the run-up to the November election and in the 2019 legislative session. For a good overview of how the tax system contributes to our state’s economic growth, we again refer you to this excellent AWB blog post.