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May 19, 2011

Dear Friends and Neighbors,

Today is day 24 of the special session, which is limited to 30 days. Earlier this week, it appeared a second special session could be on the horizon because Democrats who control both houses of the Legislature have remained an impasse on reaching agreement on the operating and capital budgets, and workers’ compensation reform.

However, late yesterday, some light appeared in this very dark, long tunnel. House Democrats announced they will reconvene the House on Saturday and work straight through until the final day of the special session next Wednesday.

The new schedule hints that progress may have been made on the operating and capital budget proposals. The question remains whether Democrats have written tax increases into the operating budget.

Voters made it very clear in November that they expect a no-new-taxes approach to the operating budget (click here to see the election results). Yet, Democrats in both the House and the Senate have introduced numerous tax-increase proposals – even though the state Economic and Revenue Forecast Council says Washington will be taking $4 billion more in the 2011-13 budget cycle than the previous two years.

Many of those proposals would eliminate job-creating tax incentives. Majority Democrats like to refer to those as “tax loopholes,” as if they are an oversight or a mistake that allows citizens to skirt paying their fair share of taxes. That is not the case. Tax exemptions have been created on purpose, heard in open public debate, passed by the majority of the House and Senate, and signed by the governor. These exemptions exist for specific reasons, often to create jobs.

Below, you will find more details about the proposals designed to separate you from your money so that state government can continue its level of spending without reforms. By the way, if any of these tax increase proposals make their way to the House floor, I will be voting “no!” We don’t have a revenue problem in Washington. We have a SPENDING problem!

Also, once you’ve read my e-newsletter, I invite you to click on this link http://www.surveymonkey.com/s/KristiansenTaxSurvey and take my “Tax Incentives Survey.” It’s only 10 questions and it will provide me with important information as these issues develop in the Legislature.

Thank you for the honor of allowing me to serve you!

Job-creating tax incentives? Or ‘tax loopholes?’

Although the state is expecting to take in an additional $4 billion in the coming biennium over the previous two years, Democrats in the Legislature have proposed tax increases to expand government spending. House Democrats have introduced more than 34 tax/fee bills, which would increase taxes by more than $1.1 billion. Some of those proposals would close what they call “tax loopholes.”

Click here to download list of Democrat tax/fee proposals.

In reality, Washington does not have tax loopholes. We have job-creating tax incentives.

There are more than 560 tax exemptions in state law. Some of the largest exemptions are for employee income ($2.5 billion), groceries, ($1.7 billion) and prescription drugs ($612 million). Other exemptions apply to non-profit organizations, specific employers that are guaranteed to bring in new jobs, and more.

Why do these exemptions exist?

When Washington is competing for jobs against other states, tax incentives provide a much-needed advantage, along with our lack of a state income tax. Unfortunately, we also have significant disadvantages, such as the burdensome taxes we charge employers. Tax incentives provide the balance needed to attract and keep jobs in Washington.

A good example of this balance is the sales tax exemption on manufacturing machinery and equipment. According to the Association of Washington Business, in the first 10 years that legislation exempting sales tax on manufacturing machinery and equipment was adopted, it generated $81.5 billion in revenue, created 285,000 new jobs and produced more than $16.5 billion in income. Now Democrats want to end that exemption and put more manufacturing jobs at risk.

With nearly 229,000 people unemployed in Washington and looking for work, in
cluding 5,688 in the 39th District, why would we consider putting more jobs at risk?

What would be the effect of ending these exemptions?

Ending these exemptions may bring in part of the expected revenue, but it may also force the closure of job sites and further hurt our unstable economy. Our goal should be to get Washington working again. These proposals threaten job security for workers in dozens of industries across the state.

The Democrat tax proposals

Democrats have proposed several pieces of legislation to end tax exemptions, and by definition, increase taxes. Here are some of the larger proposals:

• House Bill 2078: Would eliminate the business and occupation tax deduction for interest on first mortgages and deeds of trust on residential properties for banks doing business in more than 10 states.
  • CONSIDER THIS:  This $136 million tax measure would impact Washington citizens who bank with Bank of America, Chase, Citibank, Key Bank, U.S. Bank and Wells Fargo. It would increase the cost of mortgages for first-time homebuyers and decrease competition and availability of mortgages in Washington state. It won’t hurt banks. It will hurt first-time homebuyers and the home construction industry. Washington lost 4,200 construction jobs last fall – more than any other state in the nation. The latest figures show Washington lost 6,800 construction jobs between March 2010 and March 2011. When costs of first-time mortgages increase and availability of getting a home loan decreases because of this bill, who will get hit the hardest? Home builders. Do we really want to put more people out of work by making first-time home loans unaffordable?
• House Bill 2087: Would repeal the sales tax exemption for nonresidents, including Oregon residents shopping in Washington ($49 million tax increase).
  • CONSIDER THIS:   It’s estimated the repeal could lead to more than a 15 percent loss of nonresident retail sales along the 412 miles of the Washington-Oregon border. This is significant, especially when profit margins are so thin in this economy. Many Washington jobs in border communities could be at risk if the sales tax exemption was repealed.This proposal would be especially devastating to the Longview/Kelso area in Cowlitz County, as well as the Vancouver area of Clark County, which rely heavily on Oregon shoppers for a large part of their retail business. Many Oregon residents in those locations work in Washington. Why would they continue shopping in Washington if the goods they want to purchase would cost 8 percent more? The net effect of the exemption repeal would be reduced shopping, reduced employment, reduced business and occupation (B&O) tax collections, and reduced property tax collections in Washington – all with little or no increase in sales tax revenue.
• House Bill 1847: Would impose a new excise tax on those with personal aircrafts based on the value of the aircraft.
  • CONSIDER THIS: Washington is home to 59 charter flight companies, 116 repair stations, and 24 flight schools. This would give our state the highest aviation tax in the country and hurt small aviation employers.  The aviation industry employs 178,375 people and provides more than $140 million in wages in Washington state.An engineering company in Pullman operates three aircraft to do business across the United States. It’s president noted this new tax would produce several undesirable consequences, writing:  “Folks like us are likely to move or sell some or all of their aircraft, given the new major burden the tax would create. Fixed-base operators that provide services, such as maintenance and fuel, would suffer and have to lay off people. The state would lose fuel tax revenue, some of the aeronautical fees, and almost all of the airport fuel flow fees. Companies, including ours, would likely move out of state with the airplanes, causing additional loss to the state. It would push Washington to be in the unenviable position of taxing aircraft at a combined rate, which would be higher than any other state, putting Washington at a competitive disadvantage.”
• House Bill 2102: Would impose sales taxes on debt collection services ($59.6 million tax increase).
  • CONSIDER THIS:  How would this legislation affect small business owners? Here’s what an owner of a collection business in Arlington wrote to me: “The net effect of passing a bill like this is that Washington state government would force collection agencies operating within the state to close their doors and relocate to other states. It would make the cost of doing business in Washington too high and would make sense for the collection agencies to either relocate or fail.” She went on to say that clients in Washington would likely seek out-of-state collection agencies to do their business since they do not have to pay in-state sales taxes. She added, “Losing my job in this economy is a scary situation. At 51 years old, I never expected to be in this position at this point in my life.”
• House Bill 2022: Would impose a sales tax on cosmetic surgeries ($13.8 million tax increase).
  • CONSIDER THIS: Only one state in the nation – New Jersey – has imposed a sales tax on cosmetic surgery. The tax has proven arbitrary and difficult to administer. New Jersey is the only
    state in the country that imposes sales tax on cosmetic surgery.In a letter to Congress, New Jersey Assemblyman Joseph Cryan wrote that he regretted sponsoring the legislation: “New Jersey was the first state in the union to pass a tax on cosmetic medical procedures. At least 10 other states have considered a similar tax – and based on the New Jersey experience have rejected the idea. I have personally spoken with legislative colleagues in these states and encouraged them to reject the initiative. The New Jersey tax was sold on the idea that it would be largely limited to wealthy women who could easily foot the bill for the additional tax. In reality, 86 percent of plastic surgery patients are working women. Ask the New Jersey Division of Taxation about this tax. They will tell you it’s a hassle to collect – to determine what’s taxable and what’s not. Physicians are not used to collecting “sales tax” in their offices. The collections aren’t even close to the projected $26 million – a mere $7 million was collected in year one. Independent studies have proven that, after two years, for every dollar collected in cosmetic tax, New Jersey has lost $3.39 in total state revenue.”  Is this what we want in Washington state?  Click here to read New Jersey Assemblyman Joseph Cryan’s letter.

Ending an exemption from a tax is the same as a tax increase. Look at it this way: if you suddenly had to pay sales tax on your groceries, wouldn’t you consider it a tax increase because you’re now paying more taxes?

These job-killing tax proposals are not the way to get Washington working again. I believe it is time we stopped looking for more tax revenue, prioritize spending in the budget, and make Washington live within its means. It’s what the voters told us to do!

Take my online Tax Incentives Survey!

I want to thank everyone who took my first online survey, which closed about two weeks ago. If you would like to see the results, click here.

More than 94 percent of those who took the survey said they would like me to do more online surveys. So here is your chance to participate in my newest questionnaire.

I want to know what you think about repealing tax incentives. Please take a few moments to fill out my survey. Go to this link: http://www.surveymonkey.com/s/KristiansenTaxSurvey – or click on the graphic at the right.

The survey will be open until Wednesday, May 25, the final day of the first special session. I will be providing the results in a subsequent e-mail update. Thank you in advance for your answers.

In your service,

Dan Kristiansen