The largest corporate subsidy in American history — that’s what some people call the Boeing tax bill, passed during an emergency legislative session last November to keep the 777X production line in the Evergreen State.
The measure will cost a whopping $8.7 billion, according to the official estimate from the state Department of Revenue.
That’s a number from the outer limits, all right. Though the Department of Revenue calculated it exactly as it was supposed to, a more realistic view is that the legislation costs taxpayers nothing. Yet somehow the notion that the Legislature did something outrageous has become a canard of progressive politics this election season.
Novice candidates call it evidence the Legislature is willing to let corporations ransack the public treasury. And even some lawmakers say it demonstrates the Legislature’s deference to powerful business interests, while they argue vaguely that billions might be raised by a war on “loopholes.”
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The argument grates on Richard Davis, president of the Washington Research Council, the Seattle-based business-policy organization. Lawmakers are getting set for the biggest, nastiest, most bruising tax debate of recent memory, driven by a state Supreme Court decision that will force them to pay billions more for K-12 schools. Davis says the Boeing argument is being raised in a way that besmirches every tax incentive or preferential rate on the books.
“People are using this as a club to beat up on business tax policy,” he said.
So in a newly released white paper, the council challenges the idea that the Boeing legislation cost the state a dime, or that it snatched money from education.
First things first: The state didn’t give Boeing any money. It couldn’t. The Constitution forbids public gifts to private interests.
Nor did the state really forego a penny. Last fall, the prospect of thousands of jobs left other states drooling. Twenty-two of them submitted bids for 777X work, and Boeing executives were ready to jet. No tax legislation, no assembly line and no tax revenue.
Was it even a tax break? Most of that $8.7 billion extended special business-and-occupations tax and credits granted to aerospace companies in 2003. Washington’s peculiar tax structure is especially hard on manufacturers, and the change aimed to bring it in line with taxes on aerospace in other states. The rate was scheduled to expire in 2024, but last year’s bill extended it through 2040, the expected life of the 777X production line.
Is maintaining the current rate really a tax cut? Davis argues no.
The state’s assumptions also deserve scrutiny. The estimate assumed Boeing’s market share would never change — meaning Airbus would never come up with a Boeing-buster, and China would never enter the passenger-aircraft market.
So the estimate of foregone tax revenue might be high. Same goes for the state’s estimate of the additional tax revenue that will be generated by 777X production — some $22.3 billion. But the amount still will be more than the state would have received if the bill had failed — zero.
Most lawmakers understand that, Davis says. But the argument that the Legislature bent too far for Boeing implies something is wrong whenever Olympia fiddles with the state’s arbitrary tax rates — to prevent double taxation, spur investment or preserve competitiveness. Davis says the Boeing vote has taken on “a mythical, unrealistic symbolic value that I think threatens to shift the discussion from a realistic appreciation of the competitive challenges our tax policy already imposes on employers in the private sector.” He fears lawmakers will try to make up for Boeing by taking it out on some other industry.
Definitions help create the perception. Good Jobs First, a Washington, D.C., think tank that opposes corporate incentives, calls Boeing’s deal the biggest “subsidy” in the nation’s history — the nearest is a 30-year discounted-power deal for Alcoa, worth $5.6 billion, from the New York Power Authority. But the Boeing deal, which expends no public funds, is measured for instance against Alabama’s decision to spend $82 million on a new Airbus plant. Alabama taxpayers actually paid for that. “There are a lot of semantic games played when it comes to subsidies,” says researcher Philip Mattera. “We use a broad definition — subsidies can be anything from cash to infrastructure development to tax breaks.”
Seems pretty clear the Boeing deal wasn’t a subsidy, at least not in the way most people think of the word. It was more a theoretical reduction in revenue Washington would never have collected if the 777X were built in another state. Although some tax breaks might be worthy candidates for elimination next year, that argument has nothing to do with Boeing.
Erik Smith’s column appears regularly on editorial pages of The Times. His email address is email@example.com