Spokane Journal of Business

The Journal’s View: Inslee’s tax-break veto is missed opportunit

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Washington state missed a prime opportunity to reduce the tax burden on manufacturers of all sizes when Gov. Jay Inslee vetoed a measure that would have lowered the business-and-occupation tax rate for that sector. 

State legislators from both sides of the aisle who championed tax relief for manufacturers should keep the provision on their radars and fight for it again when the opportunity arises. If doing so doesn’t create jobs, it certainly could save jobs. 

As proposed, the provision would reduce the B&O tax rate for all manufacturers by about 40 percent. With such a reduction, all businesses in that sector would pay the same lower rate that Boeing Co. and other aerospace manufacturers have paid since 2003. 

In a state that’s limited by charter on the incentives it can provide businesses, a B&O tax rate reduction is one of the few tools economic development advocates can use as a financial enticement when pitching companies on moving to Washington state. Having a lower tax rate in the economic-development tool belt would be beneficial to business recruitment efforts on both sides of the Cascade Mountains. 

But the larger potential benefit of such a tax break is business retention, not business recruitment. Kris Johnson, president of the Association of Washington Business, issued a statement after Inslee’s veto denouncing his decision and pointing out that hiring in manufacturing has a ripple effect, creating more jobs in other industries. Statewide, however, the sector has experienced a net loss of more than 50,000 jobs since 2000, he says. 

“Reducing the B&O tax burden for manufacturers would have provided a welcome stimulus and helped these job creators invest in their employees and communities,” Johnson wrote. 

In Spokane County, total jobs in manufacturing are projected to increase between 2019 and 2024 at an average annual growth rate of 0.4 percent, according to estimates from the state Employment Security Department. While that’s better than an industrywide contraction, it’s just under a third of the 1.3 percent annual average growth projected for total employment countywide during the same time period. 

A faster pace of manufacturing employment growth would be beneficial, because as Johnson points out is the case on the statewide level, industry jobs in the Spokane area pay better than average. ESD data show that in 2015, the most recent year for which such numbers are available, jobs in manufacturing had an average annual wage of about $52,500, just over $8,000 more than the average for all industries. 

And in the Spokane market, we’re not talking about just assisting a corporate Goliath based elsewhere. Such a break would benefit hundreds of small- and medium-sized businesses started, owned, and operated here. 

Much has been made about the miscommunication between Inslee and the state legislators who supported the tax break. Inslee has cast the tax break as something that legislators tried to pass in 11th hour secrecy, and legislators say Inslee’s office had been in the loop for weeks. 

Regardless of what actually happened, the tax break has merit, and it should be discussed again. 

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