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Drawbacks of Corporate Tax Breaks

"Wherever the people are well-informed they can be trusted with their own government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."

—Thomas Jefferson, 1789

 

Most folks would be shocked at the skyrocketing increases of these tax exemptions. According to the Tax Exemption Report from the Washington State Department of Revenue, tax breaks have risen from $20 billion per year in 2000 to $50 billion per year today. By comparison, the entire remaining State Budget is $15 to $16 billion per year and school funding is about $7 billion. To raise school operating funding up to the national average (and reduce class sizes to the national average) would require $2 more billion. To provide 50-50 school construction matching funds would require another $1 billion. So for a total of $3 billion, our kids could get national average funding. That is only 10% of the $30 billion increase in tax breaks for multinational corporations in the past 10 years.

 


 

Even the current State Budget deficit of $5 billion is peanuts compared to the appalling $30 billion increase in corporate tax breaks in the past ten years. In fact, the majority of the decline in State revenue is not from the decline in sales taxes related to the recession. Instead, it is from the decline in sales taxes, property taxes and B & O taxes from corporate tax breaks.

 

We have already pointed out one glaring drawback of corporate tax breaks – namely that they do not actually create jobs. Instead, it is small businesses which create over 90% of all new jobs in our State. Small businesses are harmed by corporate tax breaks for their larger competitors because tax breaks create an unfair advantage for large corporations. Small businesses do best when there is a level playing field. Eliminating corporate tax breaks would therefore create more jobs.

 


 

But there are several other glaring drawbacks of corporate tax breaks.


These include:

  1. Corporate Tax breaks are unconstitutional. If our State legislature was complying with its constitutional mandate to fully fund schools (including the construction of schools), and had a few billion dollars left over after meeting its constitutional duty, it could be argued that it would be legal to pass out a few billion in corporate tax breaks (or better yet, lower the taxes on the rest of us). But the fact is that our State is 49th in the nation in school funding. We also have the highest class sizes in the nation. So protecting billions in corporate tax breaks, while cutting billions in school funding, is unconstitutional. The State Constitution is the highest law in our State. No one should support a system which is violation of the highest law in our State.
  2. It is an unfair distribution of taxes. When corporations do not pay their fair share, everyone else has to pay more. For example, the property taxes on every homeowner in King County is about $1,000 higher than it was just a few years ago. These extra thousand dollars does not go to pay for schools or social services. Instead, it goes to pay for tax breaks for the richest corporations in the history of our planet. Imagine how much it would benefit our economy if every homeowner had an extra thousand dollars to spend on local businesses every year.
  3. There are no strings attached. Corporate tax breaks might be justified if there were some kind of jobs created or other public benefit. But because there are no strings attached, corporations often use the money for the exact opposite of the intended purpose. For example, Boeing has received more than $10 billion in tax breaks since 2003. What did they do with this money? They used it to build a plant in South Carolina to ship thousand of jobs out of our State. That is right. You as a Washington State tax payer paid to build the plant in South Carolina.
  4. State tax breaks do not even benefit corporations that much. If corporations were required to pay State taxes, they could deduct their State taxes from their federal taxes. For example, Microsoft makes more than $50 billion per year. They get State tax breaks of $200 million per year. This is less than one percent of their profit margin. And the whole thing could be deducted from their federal taxes. It would not harm Microsoft at all to pay their fair share of State taxes. But $200 million would be enough to hire 2,000 teachers.
  5. Corporate tax breaks harm schools and harm children. Our State used to be 11th in the nation in school funding. Yet now we are 49th. The only thing that has changed is the huge increase in corporate tax breaks. It has devastated funding for our public schools. Our children deserve a fair chance at a successful future. The only way that will happen is to put an end to unfair corporate tax breaks and return funding to our public schools.
  6. Corporate tax breaks corrupt our Democracy. Because corporations are able to feed nearly unlimited funds to their corporate candidates, elections wind up being sold to the highest (most corrupt) bidder. There is not a level playing field when one candidate can outspend another by more than 20 to 1. In case you are wondering why there is so much corruption in Olympia and Washington DC, it is because of the influence corporate money has on campaigns. Get rid of corporate tax breaks and you get rid of the incentive to bribe politicians.
  7. Corporate tax breaks led to our current economic crash. Corporations took over Congress in the 1990’s. The first thing they did was pass deregulation of corporations – especially deregulation of banks and oil companies. This led to a lot of illegal corporate shenanigans (such as the Enron scandal and Wall Street derivative speculation). Bailing out these banks and oil companies has cost tax payers more than $7 trillion and caused a collapse in home prices and millions of lost jobs which is basically why were are now facing the worst financial crisis since the Great Depression. The harm that the recent rise in corporate tax breaks have inflicted on our economy has led many to believe that there should be an outright ban on corporate tax breaks.

 

"As the tax exemptions pile up, the cost is mounting, and our tax code looks more and more like a slice of Swiss cheese," said Anne Martens, a spokesperson for the Economic Future Coalition, an alliance of more than 140 organizations across the state concerned about deep proposed budget cuts. "The real question is whether each exemption is the best use of taxpayer money. It makes no sense to spend $5 million on an exemption that creates 100 jobs when it also means eliminating $5 million in funding for core services that leads to the loss of 1000 jobs."



 

We can support legislation in Olympia to reign in corporate tax breaks. For example, there is a very modest bill which would require greater transparency of corporate tax breaks. House Bill 1980 would require tax expenditures to be incorporated into the state budget process. While it does not cut a single tax break, it would at least bring transparency to how much these corporate tax breaks are costing us and our children. It would also use cuts in corporate tax breaks to increase funding for public schools so it is a first step in the right direction.

 

Most of all, we can get informed. Knowledge is power. We need to stop buying into the nonsense that corporations need tax breaks in order to compete. What they and we and our children really need is a fair tax structure. And that requires elimination of corporate tax breaks.

Regards, David Spring