How to Close Washington's Budget Gap

Hint: The secret ingredient is bull semen.

Occupy protestors are laying siege to Olympia, demanding that lawmakers close the state's $2 billion budget deficit by taxing Washington's richest residents. An income tax is out of the question for the special legislative session, but a pair of policy experts say there are other ways to make the 1 percent pay their fair share.

Last year, Washington voters had a chance to close the budget gap by passing I-1098. The ballot initiative pushed by Bill Gates Sr. would have taxed individuals earning more than $200,000 annually and married couples making more than $400,000 combined. This plus a couple of other tax tweaks included in the initiative could have generated an additional $2.2 billion in revenue per year for the state—nearly the exact amount lawmakers in Olympia are desperately trying to cobble together in order to continue funding education and services for the poor, elderly, and disabled.

That initiative failed miserably, of course, losing 64 to 35 percent during the ascent of the tax-abhorring Tea Party. Presumably, if I-1098 were reintroduced this year, it would pass by a solid 99–1 majority (kidding!), but in the meantime its rejection virtually guarantees that lawmakers will not be implementing a state income tax anytime soon. Why would they choose to enact something that nearly two-thirds of their constituents oppose?

The popular political solution to the budget debacle is a temporary half-cent increase in sales tax. This of course spreads the burden equally among the poor, middle-class, and wealthy. And two experts say there are more progressive ways for the state to make ends meet.

Both Marilyn Watkins, policy director for the Economic Opportunity Institute, and Eric de Place, a senior researcher at the Sightline Institute, recommend closing as many as possible of the 567 tax loopholes currently offered by the state to various corporations and industries.

Watkins is particularly opposed to tax breaks for the farm industry. While farmers are hardly stereotypical Wall Street fat cats, she says the largest beneficiaries are industrial agribusinesses, not mom-and-pop homesteads. "We almost completely exempt farms from taxation in our state," Watkins says. "That made sense back in the '30s when it was family farmers slammed by the Depression and in financial crisis, but there's not a good reason in this day and age to exempt big agribusiness from taxation."

According to de Place, several farm tax loopholes border on the absurd—including caveats for the propane used to heat vast chicken coops and fine print that favors bull-semen traders. "You name it, there's an exemption," says de Place. "They live in this weird tax-free environment. Maybe that makes sense from a public policy standpoint, I don't know, but do we really need tax-free bull semen? Is that hugely important?"

When it comes to targeting the top end of the tax bracket specifically, Watkins proposes increasing taxes on luxury vehicles like yachts and private aircraft and upping the state's estate tax. "The estate tax is paid only by a handful of estates of the wealthiest people that die every year," she explains. "The federal estate tax went down over the last year; if we increased our estate tax, it wouldn't be more tax so much as recouping what the federal government has not been collecting."

Speaking of vehicles, the loophole that most galls de Place is the one that gives an exemption to people who trade in used automobiles to a dealership. While many 99- percenters have probably traded in a car at some point in their lives, those reaping the most spoils are from the upper crust. "If you drive only the latest BMW and are trading them in every couple years, that's a big benefit," he says. "It might have modest benefit for the middle class, but definitely not for low-income people. And that's worth several hundred million dollars, about 20 percent of current budget shortfall."

Watkins recently outlined a way for the state to raise "$1 billion in progressive revenue," and de Place compiled a Twitter feed (@WATaxLoopholes) of tax loopholes that need closing. But they both acknowledge that state lawmakers will have to show some spine to follow through on their suggestions. "The reason we have 567 tax loopholes is because special interests are really good at opening up and maintaining them," de Place says. "It tips the scales in their favor. There's a car dealership in every legislative district in the state, and they'll fight to keep things the way they are. And I'm sure the bull-semen lobby would come out in favor of that loophole, too, if they proposed changing it."

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