Lowering taxes on manufacturers would pave the way for jobs that offer workers good pay and the promise of a more secure, family-wage income.
GOV. Jay Inslee’s recent veto of a business-and-occupation tax cut for manufacturing companies has brought attention to an important — and sometimes overlooked — sector of our economy. We can say without hesitation that good tax policy should provide sufficient revenue while fostering economic success and prosperity for its citizens. This balancing act between funding government and creating a climate for jobs growth is a tricky one, with a plethora of interest groups weighing in on one side or the other.
It’s important for us to get this balance right. Washington is in a 50-state competition for jobs. Tax rates are one economic factor governments can affect relatively quickly. The level of taxation is a real consideration in business decisions to locate in a state, or to move on. A lowered B&O tax rate for manufacturing would ease the burden on companies that sell out of state (which is most of them). Our manufacturers compete with firms in other states that don’t have to pay a state tax before they even turn a profit or pay their employees, as Washington companies must do with the B&O tax.
The governor rejected the tax reduction for manufacturing, concerned about giving some businesses “a break” while some homeowners will be paying more in property taxes — a result of separate legislation focused on improved funding for K-12 education. However, Washington businesses pay almost 60 percent of all state and local taxes, the seventh highest rate in the nation. The B&O tax is not on exorbitant profits, but on every gross dollar earned, regardless of a business’ profits. As for the state’s homeowners, many will actually be receiving a property tax cut as a result of the quirks of the education funding bill.
In 2015, a surprising consensus occurred among economists brought together by the progressive-leaning Brookings Institute and the center-right American Enterprise Institute (AEI). They agreed that the creation of manufacturing jobs was key to securing a middle-class life for workers without advanced degrees, and should be among our highest priorities. Applying that idea to Washington, lowering taxes on manufacturers would pave the way for jobs that offer workers good pay and the promise of a more secure, family-wage income.
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A surprising number of the companies that would benefit from the vetoed B&O manufacturing tax policy are small businesses. Many are in depressed rural areas. And it’s important to note that growth in the manufacturing sector can boost the overall economic health of a community. For every manufacturing job created, two to eight additional jobs develop.
When the governor, in what now seems like the distant past, touted the 2013 B&O tax agreement with the aerospace industry, he quoted the state Office of Financial Management’s estimate that the resulting economic growth would bring in billions of dollars in new revenue and that family-wage jobs would be assured for the coming generation. The benefits of a B&O tax-reduction policy could extend beyond aerospace. With so much concern expressed recently — by the governor and many other state lawmakers — over the obstacles lower-income workers face in accessing greater economic opportunity, a boost for manufacturing is worth a calm reconsideration. We hope it receives one.