A fall ballot measure to introduce a statewide carbon tax, already controversial among environmental groups, may save Boeing tens of millions of dollars because it effectively eliminates the B&O tax for manufacturers.
A measure on the Nov. 8 state ballot that would impose a so-called carbon tax on fossil fuels would have a surprising upside for Boeing.
Initiative 732 balances the new tax on carbon emissions, which will raise gas prices and electricity rates, with a 1 percent cut in sales tax and tax credits for low-income families.
And for Boeing and all other manufacturers in the state, in order not to disadvantage them against out-of-state competitors, the initiative almost entirely eliminates the state’s business and occupation (B&O) tax.
I-732 seeks to use market pricing to drive down fossil-fuel use by taxing emissions while cutting other taxes.
The specifics include:
• A carbon tax on fossil fuels derived from coal, oil and natural gas. That tax would start at $15 a ton in 2017 and, over more than 40 years, escalate to a peak of $100 a ton in inflation-adjusted dollars. At the gas pump, that would equal roughly a 15-cent-a-gallon increase in 2017, rising to about $1 a gallon sometime midcentury.
• A cut in the state sales tax of 1 percentage point
• The business-and-occupation tax on manufacturers would be virtually eliminated.
• Funding for a tax rebate of up to $1,500 per family for 460,000 low-income families.
The ballot measure has provoked opposition from labor groups and even environmental groups as well as businesses.
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But should it pass, Boeing is likely to come out ahead.
The state’s biggest manufacturer already enjoys a discount of 40 percent in the B&O rate, with the other 60 percent offset by large tax credits — state incentives designed to keep plane production here.
I-732 would further reduce Boeing’s B&O tax rate to nearly zero, saving it tens of millions of dollars more.
The carbon tax imposed on the plane maker will likely be substantially less than the B&O tax savings.
The initiative’s side effect of reducing Boeing’s tax bill has spurred vocal opposition from the Machinist union.
In the latest issue of the International Association of Machinists District 751 newspaper, legislative director Larry Brown calls the initiative “another Boeing tax giveaway.”
“We gave Boeing more than $530 million in tax breaks in 2014 and 2015,” Brown said. “Now the I-732 campaign wants to give Boeing executives even more tax dollars.”
Initiative backers say cutting the B&O tax for manufacturers is intended to compensate for the carbon tax, so that the two roughly offset each other for the affected businesses, while creating an incentive for them to reduce use of fossil fuels.
Imposing a carbon tax without any balancing tax reduction could drive jobs out of state, said Yoram Bauman, an environmental economist and co-chair of the Yes on I-732 campaign.
But the balance isn’t exact. “It’s not possible to make a policy that will zero out for everybody,” he said.
Boeing declined to comment on I-732. “Boeing does not take a stance on local initiatives,” a spokesman said.
Boeing’s bill lowered
Because Boeing’s annual state revenue from commercial-airplane sales is north of $50 billion, its B&O bill without any tax incentives would be hundreds of millions of dollars, far higher than for any other manufacturer.
To encourage Boeing to continue making airplanes here, the company currently enjoys two big breaks on its B&O bill:
• It pays a rate 40 percent lower than the standard manufacturer’s rate;
• And on the remaining 60 percent, it gets two large tax credits, including one for the large sums of money it spends developing new airplanes.
As a result of those breaks, Boeing’s B&O tax bill in 2014 was reduced from about $258 million to $60 million.
And last year, when Boeing qualified for an atypically big tax credit of $106 million — largely because of the expense of developing its forthcoming 777X jet — its B&O bill was reduced from about $265 million to just $19 million.
The huge tax reductions have become more contentious in recent years as Boeing has moved work to other states and cut jobs in Washington. Separately, the World Trade Organization ruled the tax breaks illegal.
But if I-732 were to pass, Boeing could no longer be accused of taking special tax breaks. That tax would simply be gone for all manufacturers. Boeing’s B&O bills would be cut to zero.
In years when Boeing spends less on development work and so would not have qualified for as big a tax credit, its savings would be much higher than last year, upward of $50 million a year.
Data on how much companies pay in B&O tax is available only for those that take advantage of the state incentives — including aerospace and timber companies, but also such businesses as processors of dried peas.
Among all those companies, none comes close to Boeing’s tax bill.
Department of Revenue data indicate that in 2015 the next biggest B&O bill for an aerospace company, after Boeing, was about $1.5 million for Everett-based aircraft-interiors supplier B/E Aerospace.
The largest 2015 B&O tax bill for a non-aerospace company that took the tax incentives was about $2 million for timber giant Weyerhaeuser.
A Department of Revenue analysis projects that I-732 would cut the B&O bills of manufacturers in 2018 by a total of about $372 million.
If Boeing saved $50 million, that would be 13 percent of the entire benefit for all manufacturers in the state.
Carbon tax substituted
The carbon tax imposed on Boeing by the initiative is unlikely to measure up to its B&O tax saving. The emissions from Boeing’s aircraft plants are not comparable to the smokestack industries that are the biggest carbon polluters.
In 2014, Boeing’s largest factory, the widebody-jet assembly plant in Everett, produced greenhouse-gas emissions of 73,500 metric tons of carbon-dioxide equivalent, according to state Department of Ecology data
Its other plants in Renton, Auburn, Seattle and Frederickson added an additional 70,500 metric tons, and the jet fuel Boeing used added a further 129,500 metric tons. That’s a grand total of 273,500 metric tons.
By comparison, the Alcoa aluminum plant in Ferndale, Whatcom County, produced 1.3 million metric tons, and the Ash Grove cement plant in Seattle produced 523,000 metric tons, according to the state data.
Boeing also would have to pay the carbon tax for the electricity it uses.
The initiative would raise electricity bills by 5 percent, according to amended state projections. Again, that’s unlikely to add a comparable cost to Boeing’s tax saving.
The I-732 initiative is advertised as being overall “revenue neutral” for the state, meaning the carbon-tax revenues will balance out the lost B&O and sales-tax revenues.
But state officials disagree that the measure, at least over the short term, would be revenue-neutral. They forecast that I-732 would cut the general fund by $797.2 million over six fiscal years, an analysis that Bauman, co-chair of Yes on I-732, disputes.
The prospects of the ballot measure running up a net tax deficit is one of the reasons why I-732 has failed to gain the support of many environmental groups, as well as labor groups and the state Democratic Party.
Even assuming that the measure does prove revenue-neutral overall, as intended, if Boeing comes out ahead in the swap between B&O and carbon taxes by paying less tax, others in the state will have to pay more.
Bauman said Boeing could arguably be a legitimate winner from the initiative.
“Ultimately, a carbon tax encourages households and businesses to use fossil fuels in ways that will add a lot of value to the economy,” he said. “Boeing is a high value-added manufacturer … creating jobs and economic value in our state.”
And he adds that the initiative makes larger allowances to help working families cope with the added electricity and gas costs from the new tax.
The state forecasts that the initiative’s tax credit of up to $1,500 annually for some 460,000 low-income families will be worth $420.6 million in fiscal year 2018, and close to $300 million in each of the three subsequent fiscal years.
Bauman urges voters to pass the initiative for its effect on climate change. And if the tax swap turns out especially beneficial to Boeing, he said, “that’s something the Legislature could come in and address down the road.”