Today’s suggested exemptions to ax and sins to tax:
$84.5 million | Repeal Business and Occupation (B&O) tax deduction for interest on residential property first mortgage loans. Since 1970, credit agencies have been allowed to deduct interest earned from loans for first mortgages on residential property – presumably to encourage home purchases. However, there is no evidence that tax savings have been passed on to consumers. Instead, the deduction has been manipulated for corporate profits and tax avoidance, in cases like the Hometreet v. Washington State Department of Revenue (DOR) lawsuit.
HomeStreet, a mortgage company, was ordered by DOR to pay B&O tax on investment income derived from residential mortgages that were packaged and partially sold – precisely the kind of complex dealings that helped create our current financial mess. The company paid, then sued for reimbursement, claiming the first mortgage exemption. Although the Trial and Appeals Courts found in favor of the Department of Revenue, the Washington State Supreme Court reversed the decision. The judicial finding would be moot if the first mortgage deduction was repealed.
$211.4 million | Repeal the B&O tax deduction for investment earnings of nonfinancial firms (individual exemption continues). Businesses that receive interest, dividends, and capital gains income, but are not engaged in banking or other financial activities as their primary business (generally less than 5% of annual income), may deduct that income when calculating their B&O tax. Most states tax such income through corporate income taxes, but Washington State has no corporate income tax.
The Washington State Joint Legislative Audit and Review Committee review said a complete exemption could be held to apply to individuals not otherwise engaged in business who have investment holdings generating more than the $28,000 minimum for filing a B&O return. This revenue estimate continues the exemption for individuals. http://www.leg.wa.gov/JLARC/Pages/default.aspx
$419.6 million | Levy a new 1 cent per ounce tax on sweetened beverages. Soda and other artificially sweet drinks exacerbate public health problems and childhood obesity, and all those bottles and cans are bad for the environment – even if they do get recycled. A new wholesale tax of 1 cent per ounce on soda, sweetened teas, and power drinks – both regular and diet, would help fund health and early learning programs. Fruit beverages and products that are primarily milk or milk substitutes would be excluded.
Total value of this Ax It or Tax It package: $715.5 million.
Economically speaking, Washington has been hit by a “perfect storm”: Plummeting tax receipts brought on by the national recession are now slamming our state’s rickety and outdated tax system. Last year, lawmakers cut $3.4 billion from the state budget. This year, we face a projected $2.6 billion shortfall.
“Ax It or Tax It” offers budget solutions that will both balance the state budget this year and provide long-term budget stability in the years ahead. By closing tax exemptions that no longer serve a compelling public purpose and carefully choosing new sources of revenue, lawmakers can stabilize funding for quality schools, affordable health care, a safety net for the most vulnerable, affordable housing, public safety, and a clean environment.
You can read previous editions of “Ax It or Tax It” here.