Relief For Little Guy Helps Big Firms Most Tax Cut Would Give Largest 25 Percent Of Businesses 80 Percent Of Savings
The tax cut lawmakers adopted the first week of the legislative session shows how far rhetoric can stray from reality in the state Capitol.
Defended as tax relief for the little guy, most of the $132 million in tax savings over the next 18 months would go to the largest and most successful firms.
The bill reduces by half a 1993 increase in the business and occupation tax on “business and professional services.”
Translation: doctors, lawyers, banks, financial services, architects, engineers and lobbyists. Also on the list are firms that provide computer programming services. “In this state that’s one company: Boeing Computer,” said Len McComb, director of the state Department of Revenue.
The bill passed both the Republican-controlled House and Democratic-controlled Senate.
Gov. Mike Lowry is expected to veto the measure on Monday. “Let us dispense with the notion this is a tax cut for the little guy,” he said earlier this month.
Janitors, security guards, barbers and other small businesses would see some drop in their taxes under the break.
But the largest 25 percent of firms would receive 80 percent of the savings, Department of Revenue estimates show. The top 4 percent - those earning $5 million or more - would pocket 44 percent of the cut.
The smallest businesses, which total nearly 45 percent of firms in the state and bring in less than $120,000 per year, would see about 8 percent of the total tax cut.
A barbershop that grosses $60,000 a year would reap about $156 in savings, or $13 a month, while a law firm collecting $5 million would pocket $25,000.
“That’s not my idea of what a tax benefit for mom and pop would look like,” said McComb.
Business lobbyists said the tax cut is fair.
“Smaller businesses may not get the big dollars, but proportionally, getting that money back can mean more than the money that goes to larger businesses,” said Carolyn Logue of the National Federation of Independent Business.
“They are often operating at very low profit margins, and the slightest little bit is a big help.”
Logue also said cutting taxes is the best way to help working people. “That increases profitability, which creates jobs.”
Tom McCabe of the Building Industry Association said there is nothing wrong if big businesses get the biggest savings.
“That’s the American way,” McCabe said. “I’m not going to defend lawyers. But taxes were raised on services significantly, and this rights that wrong.”
The tax cut is wildly popular with lawmakers sitting on a nearly $700 million surplus in an election year. Republicans and Democrats alike have poured on the Populist rhetoric as they rush to cut taxes.
When Senate Democrats rolled out their legislative agenda for the session, they issued a joint statement that said:
“Senate Democrats care about the real problems of the people who do the work, pay the taxes and raise the kids. Our priorities are home economics, not macro economics. Main Street, not Wall Street.
“The middle-class is a diverse bunch of people, but they are all struggling to make ends meet, bring up their kids, and hold on to their jobs. Our agenda is designed to help them do all that.”
Lawmakers also said the taxes have to be rolled back because service businesses were hurt by the 1993 increase.
But tax records show businesses targeted for the tax cut are booming. In fact, services is the fastest growing sector of the economy, and it grew faster after the tax increase than before.
Profit rates for physicians, management consultants and other services are in the double digits, Department of Revenue statistics show.
So why cut their taxes?
“It’s purely politics,” said Rick Bender, president of the Washington State Labor Council, which represents a half-million union members, working and retired, from longshoremen to grocery store employees. “Everyone’s scrambling to see who can be the biggest Santa Claus for business for the 1996 elections.
“Everyone says they support family wage jobs and protecting the middle class. But voters don’t see much difference between Republicans and Democrats these days.”
, DataTimes ILLUSTRATION: Graphic: Proposed B & O tax rollback rates