Corporate Tax Incentives
Gov. Jay Inslee speaks at a signing event for legislation to help keep production of Boeing’s new 777X in Washington, Monday, Nov. 11, 2013, at the Museum of Flight in Seattle. The legislation that was passed Saturday at a special session in Olympia extends tax incentives for Boeing to 2040, and directs millions of dollars for training programs for aerospace workers.
With the stroke of a pen, Washington Gov. Jay Inslee (D) on Monday signed into law the largest corporate tax break any state has ever given to a single company. It took just three days of debate in the state legislature to get the measure to Inslee’s desk.
The new law extends a business and operating tax cut for the aerospace giant through 2040, streamlines the permitting process and invests in a transportation package the company had advocated. Over the life of the package, the deal is expected to be worth $8.7 billion. That money is part of an effort to entice Boeing to build the 777X, an extended-range version of its popular wide-body aircraft, in the Puget Sound region.
Inslee called the state legislature into special session last week; both the state House and Senate returned to Olympia on Thursday and passed the incentive package by wide margins on Saturday. Despite the record incentive, Boeing hasn’t committed to building the 777X in Washington yet, though.
The deal “is notable for being the biggest package ever in history,” said Greg LeRoy, executive director of Good Jobs First, an advocacy group in the District that tracks subsidies states offer to companies.
In a June report, the group tallied 240 tax breaks worth at least $75 million that states have given big corporations since 1976, which added up to more than $64 billion. Tax incentive deals worth more than $75 million.
The size of the Boeing deal dwarfs other incentive packages states have passed in hopes of wooing big corporations. In 2007, New York agreed to provide a new aluminum plant run by Alcoa with electricity at about a quarter of the standard rates over 30 years, a deal valued at $5.6 billion. The deal in Washington State extends a 2003 tax break to Boeing valued at $3.2 billion. Oregon and New Mexico passed packages aimed at keeping Nike and Intel, respectively, valued at more than $2 billion each. Offering big tax breaks to entice a company to build a plant is a relatively new legislative technique.
In 1976, Pennsylvania gave a $40 million low-interest loan and millions more in local property tax abatements to Volkswagen, in a total package worth $100 million, to build the first foreign auto assembly plant in the United States. That plant brought 5,000 jobs to Westmoreland County, though it shuttered in 1988. Mississippi was the first state to offer a billion dollar-plus incentive, when it authorized millions in infrastructure bonds and training assistance and authorized 20 years of job tax credits for a Nissan plant in Madison County. That package, Good Jobs First estimates, cost the state $1.25 billion.
Tax incentive packages are a good way to lure a company to a state, but the benefit to the company is small in most cases, said Lyman Stone, an economist at the Center for State Tax Policy and the Tax Foundation.
The amount Boeing will save through the incentive package Inslee passed will be between 2 percent and 4 percent of its business and operating tax. “These incentives show that taxes do matter for business locations. There wouldn’t be a call to offer these things if taxes didn’t matter,” said Lyman Stone, an economist at the Center for State Tax Policy. But, he added: “They don’t really create jobs.” “Taxes matter, but does a specific short-term tax break influence the long-term planning of a company?” Lyman asked. “Their job impacts are probably somewhat marginal given that the main decisions that companies make are going to be based on long-term factors.”
In some states, the number of tax incentives is so large that the lost money can mean higher taxes on other businesses. Illinois, which has passed seven tax incentive packages worth more than $75 million since 1985 and dozens more worth less than that, is contemplating raising corporate taxes to make up for the lost revenue. And in Washington, there are 600 to 700 exemptions, many for specific companies, already in state law. Washington relies on a sales tax for most of its revenue; it’s one of several states with no personal income tax.
360° panorama near the summit of Mount Ellinor in the Olympic Mountains of Washington State. Mount Washington appears prominently on the right-hand side as well as views of the Hood Canal, Lake Cushman and the Puget Sound. Photographed by Gregg M. Erickson on an August afternoon. (Photo credit: Wikipedia)
“Washington State has the most regressive tax system of any state in the country. It taxes low-income people at six times the rate as a share of their income as the top 1 percent,” LeRoy said. “There’s no state that has more things in their incentive code than Washington State. It’s just riddled. It’s a Swiss cheese tax code.”
Critics of tax incentives say the money overwhelmingly benefits shareholders, at times at the expense of the state itself. In Washington’s case, lower costs for Boeing means the company can offer lower rates for the 777 and other aircraft it sells to its primary customers, foreign airliners. “The biggest beneficiaries of this are Boeing shareholders, most of whom don’t reside in Washington State,” LeRoy said. “This is a shift of burden from foreign airlines to Washington taxpayers who either get higher tax rates, maybe they’ll have to raise their sales tax, or they get lousier public service.” Even with the new incentive package, there’s no guarantee Boeing will build the 777X in the Puget Sound region.
Boeing has also made clear it needs machinists who would build the planes to ratify a new contract that would be in effect through 2024. The contract cuts some benefits and changes the union’s wage structure in exchange for a $10,000 per worker signing bonus and the long-term guarantee that jobs will stay in Washington State. Some machinists aren’t keen to approve the deal. Opponents of the contract gathered at the union’s Everett Hall, north of Seattle, on Monday, where the head of one of the union’s local affiliates twice ripped up copies of the deal.
Boeing has long been a pillar of the Evergreen State economy; the company and its associated industries generated $76 billion in economic activity last year, and the 777 program alone supported 56,000 jobs, according to Inslee’s office. In recent years, Boeing has expanded its manufacturing in other states, frequently at the expense of jobs once based in Washington. In 2001, the company announced that it would move its global headquarters to Chicago.
Boeing began assembling parts of the 787 Dreamliner at a new plant in North Charleston, S.C., in 2004. Earlier this year, the company announced that it would move hundreds of engineering jobs from Washington to Southern California. Boeing also employs more than a thousand people in Alabama, Arizona, Missouri, Pennsylvania and Texas.
Reid Wilson covers state politics and policy for the Washington Post’s Gov Beat blog. He’s a former editor in chief of The Hotline, (the premier tip sheet on campaigns and elections). He’s a complete political junkie. Reid is a Seattle native and graduate of George Washington University. He lives on Capitol Hill with his wife, Veronica.