Pontifications: Tax breaks in Washington State

Hamilton KING5_2

By Scott Hamilton

Feb. 22, 2016, © Leeham Co.: A group of Democratic legislators in Washington State will introduce five bills aimed at repealing some tax breaks and also taking yet another run at holding Boeing’s feet to the fire by tying jobs and tax breaks. The latest effort died in committee this year. This is the second year in a row by Boeing’s two key Washington unions, SPEEA (engineers) and the IAM 751 (touch labor) to get a bill out of committee to tie jobs to tax breaks. Boeing opposes the effort.

Most of the bills relate to non-aerospace industries. Two, however do:

New aerospace accountability bill (Rep. June Robinson, D – Everett)

This new legislation would tie Boeing’s tax preference to in-state jobs. To maintain eligibility to claim the aerospace preferential B&O rate, Boeing would be required to make a contribution to the state education legacy fund equal to $2,500 for each lost job below a baseline of 83,295 Washington jobs — the company’s in-state employment at the time of the 2013 aerospace tax package.

Repealing sales tax exemption for purchases of large private corporate airplanes (Rep. Noel Frame, D – Seattle)

In 2013, the Legislature created a sales tax exemption for large private airplanes and repair, cleaning, retrofitting, etc. of such planes. This bill would eliminate the sales tax exemption for the purchase, repair and retrofitting of large private airplanes by corporations. The preference would be maintained for sales to individuals and for repairs, cleaning, etc. on individual airplanes. Corporations will no longer claim a tax break when they buy a corporate jet.

The first bill makes sense. Boeing is subject to jobs-for-tax breaks in other states. Why not here? However, based on the description above, this bill is too broad. The referenced tax breaks were for the 777X program. After the tax breaks, Boeing announced job transfers to other states (which also provided tax breaks in many cases). It also announced that some 777X engineering jobs were assigned to its St. Louis plant, where defense business was shrinking.

As a Washington State resident/taxpayer, I absolutely believe in the principal of jobs-for-tax breaks. Locating 777X jobs (in this case) outside Washington strikes me as not living up to the spirit of the intent of the tax breaks.

At the same time, from Boeing’s perspective, when one segment of its business is in decline (defense, in this case), it is desirable to spread work around so those skilled persons affected can be maintained with meaningful work that keeps their skills intact. In this case, I believe the spirit of the tax breaks called for Boeing to keep all the 777X jobs here and if this skill-shift was necessary, other programs might have been a better choice.

There is also a need for Boeing (among others) to have flexibility to make personnel adjustments as economic and strategic decisions warrant.

It’s a difficult issue. Based solely on the description above, it appears this bill needs some work.

The Corporate jet bill, on the other hand, is ill-advised.

These tax breaks were added after years of watching corporate jet refurbishment avoiding Washington and going elsewhere because of Washington’s tax burden. Specific examples of a company in Moses Lake, where efforts are underway to develop another aerospace cluster, were given to legislators kin which a Boeing MD-80 was being converted from airline to corporate use. It’s not too many individuals that actually own a former airliner as a corporate jet (Paul Allen and Donald Trump being high-profile exceptions).

Boeing’s BBJ business includes heads of state, and apparently these are exempt from taxation under the proposed bill described above. But corporations also buy Boeing’s 737-based BBJs, which competed with the Airbus A320-based ACJ.

It took several years for this tax break to become law. It’s a bad idea to reverse this one now.

Trump on Boeing

The spectacle of Donald Trump as he is running for the Republican nomination for president has been truly appalling. Now he’s weighed in on Boeing’s plan for a completion center in China, while campaigning in South Carolina, where Boeing has its second assembly line for the 787. If Boeing proceeds with the completion center, it’s “outta here,” he told South Carolinans. No such thing would happen while he was president, Trump declared.

What a blow hard.

Once more, Trump demonstrates that he hasn’t a clue what he is talking about. As I made clear in this column at the time (linked above), Boeing has no choice but to play the Chinese game, as does Airbus.

Further, suggesting that Boeing would be “outta here,” is preposterous.

Trump’s self-importance knows no bounds. John Kasick is the most reasonable (and rational) Republican running for the nomination. It’s too bad he’s not getting more traction.

12 Comments on “Pontifications: Tax breaks in Washington State

  1. Trump plays the investment card very hard himself, politicians seem to always fall for it. However he definitely overplayed his hand by threatening to withdraw investment if banned from the UK.
    People of the USA, it’s time to stop the joke, it’s not funny anymore, you’re starting to frighten everyone.

  2. The narcissistic conman*-in-chief – the GOP’s monster of their own creation – now wants to be the commander-in-chief. The good news is that it’s very unlikely that he will prevail in the general election in November.

    The LCA duopoly with a worldwide procurement and supplier network is obviously a whole different business and ball game than; a) regularly filing for Chapter 11 bankruptcy protection of casinos located whithin the US, or b), opening up unwanted golf courses outside the US.

    Of course, if Boeing only produced aircraft for the US domestic market, then Trump and his fellow wall-builders might have a point. In contrast to US manufacturers seling to overseas markets by building factories in the destination countries, Boeing has an almost entirely domestic labour force. Boeing constantly has to ask themselves how they’re going to get foreign airlines to buy more of their planes. It obviously takes a different strategy to do this compared to how other US companies, operating in high-volume industries, are selling their manufactured commodities overseas. To remain competitive, Boeing IMJ will have to become more multinational (i.e. new FALs etc. located outside the US) – or to become more like the Airbus Group that has identified global sourcing as one of its leading long-term objectives and aims to source 40 percent of its supplies outside Western Europe by 2020**.



  3. Monty Python did a last return tour only to be overshadowed by Trump. That’s why the Brits can’t stand him.

  4. Not one to like top-down Federal control, but given that FAA micromanages so many things in aviation, including matters such as drones weighing well under a pound, perhaps we should have a federal reg that balances the maintenance and sales playing field? I.e., set a federal rate, applicable at all states. Period. Then we do not see legislators finagling to slightly advantage their state over another while carrying everyone down into a mudhole.

    It seems not impractical to see these tax credit laws and exemptions – not just in Washington but in ALL states – as in violation of Interstate Commerce … in that they shift decisions away from the free and unencumbered ‘invisible hand’ that supposedly once prevailed here. Federal authority, rooted in acts passed as early as 1880, is repeatedly used to preempt state and local actions. Perhaps it should also preempt state’s imposing discriminatory taxes applied on sales and repairs of aircraft to or from out-of-state. Of course, along with this Federal preemption there has to be full and responsible performance by the Federal regulatory agency. In this case, frankly, FAA has to get off its bum and actually regulate by emplacing a federal tax/fee to be used/collected by all states.

    • There is a contention that the current modus of operendi does violate the Interstate Commerce portion of the Constitution.

      Maybe with a new justice we can address that as well as address the US Disunited ruling of recent vintage.

  5. Scott,

    Wow, you’re really opening this thread up, aren’t you? Get ready. We already have a link to a wacko interview.

    I also wish Kasich would get more traction, but I guess he has a name recognition problem supported by the fact that you spelled it “Kasick”.

  6. Scott:

    I am truly shocked, Trump a blowhard, I thought he at least had clown rating. Doonerbury put it best when he explained it was all about Trump.

    Agrees on Kaisch (sp). The only one of the bunch worth a look

    Then we have Baby Face Nelson and the Mortician. wow.

  7. I think Trump is Bush’s secret weapon. Next to him he seems a reasonableacceptable candiate.

  8. Secret weapon??? I don’t know if you realize this, but as of last Saturday, Feb 20, there is no longer any Bush running for anything.

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