Peter Callaghan: Does a transparent tax loophole make for a better tax loophole?

A couple of other debates received most of the attention last week when the Legislature hit one of its self-imposed deadlines.

The Senate considered and defeated a revision to the state’s teacher and principal evaluation system. Later, the House took the Senate up on its offer of creating and funding a state version of the Dream Act to allow college-bound students without legal immigration status to still qualify for financial aid.

Both managed to overshadow an interesting debate on another measure. House Bill 2201 is an attempt to shine light on some of the tax loopholes and preferences that lawmakers like to talk about (but rarely do much about).

I enjoy poking fun at legislators — mostly Democrats in this case — who threaten to close some of the state’s 650 preferences so as to use the money for more important things. Each campaign usually ends not just in failure but often in the creation of additional tax preferences.

(Critics call them loopholes to communicate that they are giveaways to business. Supporters call them incentives because they think they encourage business decisions and employment.)

Rep. Reuven Carlyle, the Seattle Democrat who chairs the House Finance Committee, has been the latest leader of the loophole-closure efforts. And he knows better than most how difficult it is to change the tax code. So he now counts his victories in different ways.

Like last year when the long-awaited budget deal with the Republican-dominated Senate required the House to accept additional tax breaks. In exchange, House Democrats received a change in law that all new tax breaks must be more transparent.

Specifically, any company that benefits from a tax preference will have to report the value of the preference, how much they pay in other taxes and what their revenue is. And, more important, the state would make that information available to the Legislature and the public.

This year, Carlyle is trying to expand public access to tax break information. HB 2201 adds 13 economic development tax breaks to the 19 breaks that already require broad company-by-company disclosure. (Microsoft, for example, already reports that in 2012 it gained $2 million from the high tech tax credit.)

The bill would then require all publicly traded companies that benefit from a Washington state tax preference to break out data for its in-state operations.

Carlyle argues that there is no way for the Legislature or the public to make judgments about the value of any given tax break without all the numbers. Shell Oil, for example, testified this year that it pays $50 million in taxes to Washington. While that sounds like a lot, “we don’t know if that’s on $100 million in revenue or on $2 billion in revenue.”

(Actually, Carlyle does know, but he can’t say. State law gives the chairman of the Finance Committee access to a bunch of data, but he could be expelled from the House and jailed if he released it).

The state already collects data on tax breaks and releases some numbers publicly. But they are aggregated by industry, not specific to companies.

Will this data just provide fodder to opponents? One top loophole critic, Rep. Chris Reykdal, D-Tumwater, joked that the state tax code is “nothing more than 100 years of random acts of kindness.”

House Appropriations Committee Chairman Ross Hunter, D-Medina, said a shortage of data could sometimes make it more difficult for a company or industry to win approval.

“We might make more economic development decisions if we could fine-tune the decision to be more effective,” Hunter said. “As it is today, we’re just guessing, … and I’m pretty reluctant to make shots in the dark.”

While business lobbyists and all House Republicans opposed the disclosure sections of the bill, fearing they would harm businesses and discourage companies from coming to the state, they do want the rest of the bill, which streamlines or reduces current financial reporting requirements.

Will the desire for streamlined reporting be enough to win support in the Republican-dominated Senate? Carlyle said he hopes.

“This is not a message bill,” he said.

“This is really important policy.”

Peter Callaghan: 253-597-8657