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Wednesday, February 27, 2008

Oly Action: Millions in Tax Breaks

posted by on February 27 at 15:24 PM

First the good news:

PI reporter Chris McGann broke the news a couple of weeks ago that the state was set to give Microsoft and Yahoo a big tax break on their server farm project in Eastern Washington.

Well, I think McGann’s reporting had something to do with the latest news: The giveaway was officially killed this week when the Senate released its budget and seconded last week’s House budget by snuffing the exemption.

I got a chance to ask Gov. Gregoire about the tax break last week, and she stood by it.

the Stranger: You campaigned on fiscal responsibility, on no new taxes, and closing tax loopholes. Have we closed any tax loopholes? Why are we giving a $75 million tax break to Microsoft to build a server farm in Eastern Washington?

Gov. Gregoire: On fiscal responsibility, all you need to do is go to Wall Street and see we have the highest rating for bonds. I inherited a $2.2 billion shortfall, and we have money in the bank. We funded 728 (smaller class size); funded teachers’ cost-of-living increases, the pension system. I got rid of the bed tax we had on seniors. The liquor tax. I got rid of that. We brought fiscal responsibility back. People had been talking about a rainy-day fundówell, we got it done.

We’ve now got a savings account that any family should have.

[Regarding the Microsoft Server Farm tax break:] The competition [to get their business] is fierce. Other states are offering them what we can’t do constitutionally. We can’t just dole out money. We’re not giving them anything at the outset. We’re giving them a reduction in sales tax when they have to replace their equipment every three years. We’re building economically in a part of the state that, candidly, desperately needs it. Otherwise it’s not going to be here.

GRADE: The governor didn’t name a single tax loophole that’s been closed. And the server farm is supposed to create just around 25 jobs. C-

Now, some other news:

However, taking a look at the House budget, it looks like they passed about $72.9 million worth in tax breaks this session (added up over the next three bienniums.)

None of them sound outrageousóalthough $33,000 in exemptions for tail grooming services is certainly curious. Mostly there are breaks for free-to-be-you-and-me things like purchasing energy efficient equipment and giving loans to women, veteran, and minority owned businesses.

However, there are some that I’ve got questions about. I promise to report back.

Meanwhile, what about cutting out tax loopholes instead of adding them?

Last session, the legislature heard from the Joint Legislative Audit and Review Committee, JLARC, a committee set up the previous year to review corporate tax breaks to see which ones were and were not worth it. To my knowledge, JLARC has not been persuasive enough to kill any of the state’s corporate freebies.

RSS icon Comments


So why aren't all corporate tax exemptions subject to voter approval after say four years, with detailed analysis on whether or not they actually created the stated jobs and revenues, and then have to go back for a vote every four years?

Because - when they get an exemption - the middle class and the poor get to pay the difference.

(and the first Ron Paul that pops up and says corporations don't pay tax I'm shipping in a pine box to the EU to be fined by their competition commissioner ...)

Posted by Will in Seattle | February 27, 2008 3:36 PM

Actually, if Microsoft didn't get the tax break, they probably wouldn't put the server farm in Eastern Washington. It isn't a situation where we are giving away tax money. The net is that we are giving tech jobs to Eastern Washington. What's the big deal?

Posted by Clint | February 27, 2008 3:44 PM

Devil's advocate really quick. The sales tax is regressive, so in most cases it's a step toward progressive taxation when we reduce the sales tax (though it means less total tax revenue, obviously). Energy efficient appliances tend to be expensive.

But by exempting efficient appliances from the sales tax, it essentially cuts consumer prices for them by 8 to 9 percent, thus making them cost-competitive with less efficient models. That's a loophole that makes taxes less regressive in a way that it yields less energy use and climate emissions.

Point is: a loophole isn't inherently bad; it's only bad when it advances bad policy outcomes.

Posted by Eric | February 27, 2008 4:04 PM

Could we just find 25 tech workers in Eastern WA and give them $3 million each? Or just a million, and then we'd still have $50 million left over? What's so great about 25 freaking jobs?

Posted by Fnarf | February 27, 2008 4:05 PM

@2 - bull, they want to build there due to labor costs, land costs, and power costs, as well as availability.

Plus it lowers their global warming emissions, since it's hydro-based, so they can use it to offset coal plants for server farms elsewhere.

Try again.

No tax breaks.

Posted by Will in Seattle | February 27, 2008 4:49 PM

Hey Josh didn't the transportation bill pass funding all kinds of road work?

Posted by ouch | February 27, 2008 5:08 PM

they are passing on collecting sales tax on equipment so if we followed fnarf's advice we would lose $25 million whereas this way we gain a few jobs and use up some energy - the bigger issue is explaining to every other business why they need to pay sales tax on their capital equipment.

Posted by ouch | February 27, 2008 5:15 PM

Add those new tax breaks to these: from 2004-2006, legislators passed 61 measures either granting new tax preferences or extending old ones that will cost the state nearly half a billion dollars in the 2007-09 biennium.

Posted by Aaron Keating | February 27, 2008 5:16 PM

Data centers aren't really where the "hot" tech jobs reside. You maybe need a staff of 20-25; some for the adminstrative overhead, the rest are guys who run cable and rack servers all day. They're not getting paid a king's ransom either, so the whole "creating high tech jobs in Eastern Washington" thing is mostly hot air. Putting them along the Columbia is just a way to keep the power costs low so the presumable return to shareholders is increased. The programmers and application developers can be anywhere, really.

Posted by laterite | February 27, 2008 5:29 PM

Want to create good paying high tech jobs in Eastern Washington?

Take the same money and use it to BUILD wind farms that co-locate with existing farmland.

Creates way more jobs, helps America, and creates way more jobs from the extra energy, instead of sucking it up for server farms.

Econ 200.

Posted by Will in Seattle | February 27, 2008 5:56 PM

they're paying sales and property taxes on that data center as well as building the thing from the ground up. i hate corporate tax breaks but the giveaway is probably 50% of the actual tax break.

Posted by kinkos | February 27, 2008 7:37 PM

econ 200 would be macro and this would be micro so more likely econ 201 and Will there is no money, the state isn't giving them $75 million it is not collecting $75 million c-a-n y-o-u
u-n-d-e-r-s-t-a-n-d the difference?

Will repeat - there is no money spent - there is only money not collected by forgiving half the sales tax on the equipment.

Posted by ouch | February 27, 2008 8:06 PM

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