Was it Worth it? A Report on the Effectiveness of Aerospace Industry Tax Preferences

July 22, 2014 | Economic Opportunity Institute

In a controversial deal to keep aerospace jobs in Washington State, The Boeing Company was awarded the largest corporate tax break in the history of the United States. The law, signed last year, extends a B&O tax cut for the aerospace giant through 2040, streamlines the permitting process and invests in a transportation package the company had advocated.

It is estimated that “over the life of the package, the deal is expected to be worth $8.7 billion.” The precursor to this law granted in 2003 saved Boeing (and cost the state) an estimated $1.046 billion between 2006 and 2013. With about $1 billion in tax revenue already forfeited and an expected $9 billion more in the next 25 years, it’s time to ask, were these tax breaks really worth it?

Recently, the Joint Legislative Audit Review Committee (JLARC), the committee in Olympia that regularly evaluates tax breaks, published a report on the effectiveness of the original 2003 aerospace industry tax cuts in achieving the following policy objectives: 1) To encourage the continued presence of the aerospace industry in Washington 2) To reduce the cost of doing business in Washington for the aerospace industry compared to locations in other states 3) To provide jobs with good wages and benefits. In response to the 2013 tax deal, the legislature has added a fourth policy objective to the three outlined above which is “to maintain and grow Washington’s aerospace industry workforce.”

WA Share of Boeing Employment Has Grown Relative to Other Locations Worldwide Where Boeing Operates

WA Share of Boeing Employment Has Grown Relative to Other Locations Worldwide Where Boeing Operates

What was the result? Well, the jury’s still out. Evidence from the report indicates that all three public policy objectives above are being achieved, however “JLARC staff does not assert whether there is a causal relationship between these outcomes and the tax preferences.” In other words, it’s unclear whether the positive indicators of aerospace industry growth and Boeing’s decision to locate in Washington can be attributed to any one factor, such as the aerospace tax credits.

WA Concentration of Aircraft and Parts Manufacturing Is Growing  Relative to Other States and National Average

WA Concentration of Aircraft and Parts Manufacturing Is Growing Relative to Other States and National Average

The report details the positive growth that has occurred in the aerospace industry in the last decade and warns of the economic ramifications that could have occurred had Boeing not located to Washington. However it is uncertain whether Boeing’s presence in Washington and the subsequent development of good aerospace jobs would have occurred anyway regardless of the tax incentives. In this way it is difficult to determine the return on investment and whether the money spent on these corporate tax breaks could have been better spent elsewhere.

Boeing Builds the 787 and Other Facilities Elsewhere: Long-Term Job Loss Estimated at  199,790 and GDP Decline at $46 Billion

Boeing Builds the 787 and Other Facilities Elsewhere: Long-Term Job Loss Estimated at 199,790 and GDP Decline at $46 Billion

For example, the $9 billion in lost tax revenue expected as a result of the 2013 legislation could completely fund the McCleary decision which mandates the state to fully finance basic education. It could also fund a number of Washington’s high priority transportation and road maintenance infrastructure projects such as the Alaskan Way Viaduct replacement tunnel, the replacement of the 520 bridge, and the replacement ferry terminal among other state repairs and projects.

The legislature has directed JLARC to review the 2013 aerospace tax preferences in 2019 and every five years thereafter.  However, the report recommends that if the legislature wants a more helpful assessment in 2019, it should identify a “specific target level” such as a “specific number or percentage increase in aerospace and support industry jobs” so that effectiveness can be better measured. While achieving target metrics does not necessarily determine causality, it will give the legislature and the public a clearer sense of whether these massive tax breaks were actually worth it.

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Posted in Tax Reform

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