Friday, February 26, 2010

Is ending a tax exemption the same as raising taxes?

Though the Democrats on our side of the capitol sundial have yet to roll out our revenue plan, the Senate Dems and Governor Gregoire have rolled out theirs and both suggest we can save money by ending certain tax exemptions.

Here in the House, the Finance Committee heard a bill last week that included a few of those exemptions so the idea is likely to stick to some extent.

Let's say you put a tax in place - a sales tax on automobiles, for example - and then, over the years, begin to "exempt" some people from paying that tax. As time goes by, the list of folks who no longer have to pay the tax can get pretty long.

So if someone decides the exemption is no longer needed - as some said of the sales tax exemption initially introduced to motivate people to buy now-popular-with-or-without-a-tax-incentive hybrid vehicles - is that the same as raising taxes? Or is it simply reclaiming the money the state basically gives away to folks who buy a hybrid vehicle?

From reporter Austin Jenkin's blog:
Here's what Senator Joe Zarelli, the ranking Republican on the Senate budget committee, says on the subject:

"The majority uses words like 'loopholes' and 'hidden' to denigrate tax incentives that were approved by the Legislature through an open process ... The majority can disagree all it wants, but there is no question that ending a tax incentive is the same as raising a tax."
So does that mean ending the real estate excise tax break for banks that sell a property in foreclosure is a tax increase? Or is it reclaiming tax dollars that, in all actuality, the banks could have been paying all along AND that most other property owners have to pay? Is it a tax increase, or is it a way of making sure there isn't an unintended incentive for banks to foreclose a property to avoid paying REET?

There are more than 560 exemptions on the books today, that add up to nearly $100 billion worth of uncollected revenue. Many of these exemptions were created, and will remain in place, for very good reasons. But, really, is it accurate to say that ending any of these exemptions is the same as raising taxes?

Think of it this way - You pay your kid a $10 per week allowance. Summer break comes around and you offer an extra $5 per week to mow the lawn once a week. Would you let him complain that you cut his allowance once school started up again and it was back to $10 per week?

We'll hear a lot more about this as legislators wrangle over how to fill the final $2.8 billion of a $12 billion shortfall for this biennium. But for now, we'll point out we're not the only ones who see value in sometimes taking a fresh look at exemptions and ending them when they are no longer needed or effective.

Apture