Research Council: “Increasing aerospace taxes would be counterproductive.”

Boeing’s decision to consolidate 787 production in South Carolina has led some Washington officials to reconsider tax policies designed to nurture aerospace production in the state. Gov. Jay Inslee, for example, has called for a “hard look” at the company’s tax treatment.

Gov. Jay Inslee is standing by his call for a “hard look” at state tax breaks that have reduced Boeing’s tax bill by hundreds of millions annually, even as some elected leaders criticized his stance as divisive.

Speaking at a news conference Thursday, Inslee said he had not made any decisions, but insisted Boeing’s preferential tax treatment — long enshrined in Washington’s tax code through bipartisan votes — will be on the table in the coming months.

A hard look might convince the governor and others that so-called preferred tax treatment is sound tax policy. The Washington Research Council considers the proposition and concludes that it would be counterproductive to increase aerospace taxes.

We wrote about that tax treatment in a 2014 policy brief. As we noted, competitive tax policy is not a subsidy: “It’s a pragmatic response to the marketplace, including the global competition for major industrial projects.” Indeed, as we wrote then, the tax preferences Gov. Inslee is referring to “were intended to bring Boeing’s taxes in Washington into line with what they would be in other states.” (Note that, in general, many of Washington’s tax “preferences” really “work to normalize Washington’s tax structure by reducing distortions, offsetting disincentives and avoiding pyramiding.”)

WRC senior analyst Emily Makings makes the convincing point:

If higher taxes result in more production moving out of Washington, the state would collect less revenue than it does with the current tax preferences in place. The governor and lawmakers should consider Washington’s long-term competitiveness for aerospace jobs before rushing to raise taxes.