Editorial: State should stay on task in reviewing tax breaks

A new report from the Pew Center on the States concludes Washington and Oregon are the most progressive in their scrutiny of tax incentives. Most states, Idaho egregiously among them, never look back at the income, sales or other breaks enacted to encourage business formation and growth. Over decades, the reasons some were enacted no longer make sense. But they live on, depriving states of much needed revenues or shifting taxes on to other businesses unsheltered by the tax codes.

In 2006, the Washington Legislature authorized reviews of all preferences over a 10-year cycle. With nearly 600 on the books, that translates to studying about 60 every year, a substantial amount of work that begins with the staff of the Joint Legislative Audit and Review Committee. Its findings are passed to a Citizen Commission for Performance Measurement of Tax Preferences, which holds public hearings.

The commission can, and does, reject staff conclusions. Last year, the staff committee recommended a sales tax exemption for hog fuel (waste wood) burned to generate energy be allowed to expire in 2013. The commission concluded that some of the economic and ecological rationales for the exemption, worth $3.2 million per biennium, might have changed, but the provision still had value.

The staff and commission findings go to the legislative committee, which may or may not take them to the House and Senate for a vote. And, too often, that is where much of the work is round-filed.

Since the initial round of recommendations in 2007, none of five exemptions recommended for termination has been killed because, thanks to Initiative 1053, it takes a two-thirds majority to do the deed. Five exemptions have been allowed to expire, as recommended, and four will expire unless renewed. One of those is the hog fuel exemption, which is unlikely to die.

As a matter of clarification, the just-completed special session removed a business and occupation tax exemption for first mortgage interest for banks with branches in 10 states, a change that may not withstand court review. A tax break that benefits the film and video industry was renewed after a one-year lapse.

Oregon takes a superior, more active approach to the proliferation of exemptions. All tax credits expire after six years unless lawmakers vote to extend them. Last year, the state went further by setting a spending cap for the expiring incentives.

Idaho has paid mere lip service to reviewing tax exemptions, and the lips barely move. Killing a tax credit equates to raising taxes. End of story.

Washington can be proud of its process. How fruitful those labors will be going forward rides on legislator willingness to address past mistakes, or myopia, by rallying to a two-thirds majority, a hurdle not envisioned when tax preference review was enacted just six years ago.