Don Brunell 5/19/11

Tax amnesty a bright spot in our dismal economy

State lawmakers in Olympia received a much-needed boost recently in the form of $320 million in new tax revenue, the result of a new tax amnesty program. The amnesty, first proposed in 2009 by State Auditor Brian Sonntag, was vigorously championed by the Association of Washington Business as a way to settle disputed tax assessments.

To use a cliche the tax amnesty program is a win-win. State and local governments gained vital tax revenue, and taxpayers, many of whom are small employers, gained much-needed certainty about their tax liabilities. In fact, the program is far more successful than anyone predicted. Officials with the state Department of Revenue estimated it would bring in about $25 million. It netted 13 times that amount.

According to The Olympian newspaper, $263.4 million will go into the general fund, $500,000 is directed to other state tax accounts, and $56.8 million will go to counties and cities. DOR officials reported that more than 70 percent of the businesses participated in the amnesty are small businesses.

Tax amnesties are not new. States first began using them during the recession of the early 1980s as a way to bring in more revenue without raising taxes. A similar tax amnesty program in Illinois last year was predicted to bring in $250 million; so far, it has netted $546 million and counting.

Many of the employers in our state who are part of the tax amnesty have been embroiled in contentious, protracted battles with the state Department of Revenue over how much taxes they owed. Amnesty is a way to avoid going to court.

“This provided the opportunity to resolve tax matters that could have gone on and on in legal disputes,€ù noted Amber Carter, AWB’s tax and fiscal policy director.” “The world really changed overnight for taxpayers.”

The one-time windfall may give legislators a temporary budgetary Band-Aid, but more substantive reforms are needed to help Washington emerge from the recession.

For example, legislators are considering a broadly supported change in workers’ compensation payments that would allow injured workers to opt for lump-sum settlements. The measure, which has multiple layers of safeguards, would help rescue Washington’s failing workers’ comp system and save struggling employers more than $2 billion, according to the Department of Labor and Industries. That money could go to expanding business and adding workers, yet House Speaker Frank Chopp, D-Seattle, refuses to allow a floor vote because union leaders are dead-set on killing it.

Apparently, union leaders and their supporters in the Legislature are betting that the economy will recover on its own. However, employers, who pay the bulk of the workers comp taxes, are staring at double-digit rate increases next January unless the system is reformed.

Union leaders respond that workers’ comp costs will come under control when the economy improves. They’re wrong.

At AWB’s Spring Meeting in Spokane, State Economist Arun Raha reported that state tax collections are flat, and the economy has slowed. Washington has 176,000 fewer jobs than when the recession started. By comparison, at this point in the 1981-82 recession, the economy was 60,000 jobs in the black. Raha says he doesn’t expect to recover the lost jobs until October 2013.

More bad news: Raha says he sees signs of a “double-dip” downturn in residential housing prices. Commercial construction is still anemic, although the rate of decline is slowing, but Raha doesn’t expect much improvement until next year.

Against this backdrop, it is more critical than ever to help employers keep or grow jobs. Sadly, it appears some lawmakers still haven’t gotten the message.

But others have. In the seventh annual survey of 500 CEOs on the best and worst states for business, Chief Executive magazine reports that Washington slipped four spots from last year’s ranking to 34th.

Washington’s economic recovery is stalled, and it won’t get better until lawmakers implement true tax and regulatory reforms.

(Don C. Brunell is president of the Association of Washington Business.)