The numbers are in for the first two years of Boeing’s big tax break from the state. And so far they are blowing the lid off even the historic cost estimates made at the time.
Remember a couple years ago when we gave Boeing what was dubbed the largest state tax-break deal to a private company in American history?
We had no idea.
The numbers are in for Boeing for the first two years since that pricey deal passed. And so far they are blowing the lid off even the historic cost estimates made at the time.
In 2015, Boeing got tax breaks and credits totaling $305 million — which is 55 percent more than the state estimated the entire aerospace industry would cash in for that year. In 2014, Boeing alone exceeded the tax-break estimates by 19 percent.
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The first-of-their-kind figures raise the possibility that the biggest tax break in history was actually lowballed at the time.
The figures also show Boeing apparently has been able to drive its state business taxes down by 80 to 95 percent, compared with what it would have paid without the breaks.
All of this is the confluence of two events: the passage of a little-known disclosure law that forces businesses to report the value of their tax breaks for the first time. And then the frenzied, three-day special session in November 2013, when legislators were called in on an emergency footing to grant huge tax breaks for aerospace. The threat was that Boeing would build its new 777X plant somewhere else.
“I was first called about that on a Tuesday, and we were voting by Friday,” state Sen. Reuven Carlyle, D-Seattle, recalls about the rushed proceedings.
Maybe the cost estimates were done in too much haste? Dollar amounts for the breaks, per year from 2014 to 2040, were quickly generated in Olympia and used by lawmakers as the foundation for that vote. It was this document that set the reported size of the tax breaks, extended until 2040, at $8.7 billion.
But under that new disclosure law, pushed by Carlyle, Boeing now has to publish the exact value of the breaks it gets. So rather than listening to hazy claims, people can scrutinize the numbers and judge for themselves whether subsidy deals like this are worth it.
A Boeing official, speaking on background, strongly defended the deal. He said the breaks are so much higher because Boeing produced more planes than expected, and also sank billions into new factories here.
He listed the new 777X carbon-composite plant in Everett (opening May 20), the 737 MAX facility in Renton and the expanded customer delivery center at Boeing Field. Together they add up to a “massive investment in this state.”
The tax breaks are jiggered to reward such spending. For example, lawmakers voted in 2013 that Boeing would no longer have to pay sales tax on construction of new buildings. The state badly underestimated the cost of that policy, projecting only $13 million in lost revenue. Boeing has saved $71 million already — booking in two years an amount that’s more than five times the estimate for the full 25 years.
“This is all good news,” the Boeing official insisted, reiterating that higher numbers just mean Boeing spent more money.
There’s truth to that. It’s also true we are much better off with Boeing staying here than leaving. If government is going to subsidize private companies, at least in Boeing it picked one that provides tens of thousands of high-paying jobs.
That said, the tax credits have been so rich that in 2015 they drove Boeing’s business and occupation (B&O) tax bill almost all the way down to zero.
Because the disclosure shows what Boeing saved on its B&O taxes, we can calculate, for the first time, what the company actually paid. In 2015, Boeing reported that the state’s 40 percent B&O rate reduction saved it $106 million. That means it technically owed $159 million (the other 60 percent).
But tax credits passed by the state come right off this bill. The credits totaled a whopping $140 million for Boeing in 2015. Subtract the credits, and it means Boeing owed the state just $19 million in business taxes last year.
Without any of the breaks, Boeing would have owed $265 million. That means the package cut the company’s main state business taxes in 2015 by 93 percent. (Boeing would not confirm any of these calculations. The official said the company won’t itemize any of its taxes paid. But the company said last week it believes that across all taxes, it is the state’s largest taxpayer.)
Carlyle, who supports the tax-break deal because of the obvious job benefits, said it’s a sorry reality that big firms here just don’t pay much in state taxes. The burden is heaped instead on small businesses. He sent me data from 2013 showing that our booming aerospace and high-tech sectors combined paid just 3 percent of all state business taxes. It’s the result, he says, of decades of special deals won by lobbyists in Olympia.
“The ones who really get taken for a ride in our tax system are small businesses and poor people,” Carlyle said.
The story of that big giveaway weekend in 2013 in Olympia is still being written. It would have been very damaging had Boeing moved away. But there’s also a down side to being one of the top states in the nation for corporate welfare. The bill for that is only now coming into view.