Washington state is on the verge of ending a large tax break for the Boeing Company and its parts suppliers. This is happening at Boeing's bidding to head off a bigger hit from threatened European tariffs.
The Washington House voted 73 to 24 on Wednesday night to suspend the Boeing tax break followed by an even more lopsided final vote in the state Senate Thursday.
Boeing made this unusual request to pay higher taxes. It hopes the move will help resolve a long-running international trade dispute involving complaints and counter-allegations of unfair government subsidies to Boeing and its archrival Airbus.
Republican state Rep. Ed Orcutt said it is important to shield Washington exports from retaliatory tariffs. Still, he voiced unhappiness during the floor debate.
"I don't like being strong-armed by the WTO (World Trade Organization) or the European Union and I kind of feel a little bit like that," Orcutt said. "I have concerns that we're not being able to set our own tax policy."
State House Democratic Majority Leader Pat Sullivan noted the tariffs that European countries threatened to impose later this year target not only U.S. aircraft sales, but a wide variety of other Pacific Northwest exports such as fish and shellfish, technology products and numerous agricultural commodities.
"Regardless of how you feel about the Boeing Company, regardless of how you feel about our tax policy, I think everybody on the floor of the House of Representatives is concerned about the impact of tariffs placed by the European Union... and the detrimental impact it would have on our state's economy," Sullivan said. "That's why this bill is being brought forward."
Charging aerospace companies in Washington the regular manufacturing business tax rate instead of the preferential rate they have enjoyed since 2003 will generate more than $100 million per year for the state treasury.
Various legislators proposed ideas for how to spend the unexpected windfall. But in the end, legislative budget writers decided to bank the money when it comes in. They may need the extra dollars later to patch holes knocked into the state budget by economic shocks rippling out from the current coronavirus pandemic.
"Today’s repeal by Washington state of its aerospace business and occupation tax rate brings the United States into full WTO compliance by fixing the single finding against the U.S., further emphasizing our commitment to free and fair trade," said Boeing spokesman Bryan Watt in an emailed statement Thursday. "We applaud Washington state leaders for their partnership in ensuring full compliance with WTO rulings."
Boeing was the biggest beneficiary of the aircraft manufacturing tax break, but not the only one. Dozens of parts suppliers and subcontractors across Washington also take advantage of the reduced tax rate, which took its current form in 2013 as part of a legislative push to ensure that the Boeing 777X widebody jet would be assembled in Washington.
On Thursday morning, the final day of the 2020 legislative session, the measure passed the state Senate on a 45-4 vote. The bill is now headed to the governor's desk. Democratic Gov. Jay Inslee is expected to sign the legislation soon so the tax change can take effect April 1.
The tax break repeal that passed the legislature includes a so-called "snapback" provision. This would partially reinstate the valuable aerospace tax break if the U.S. and European Union reach a trade dispute settlement that allows it. Behind closed doors over the past two weeks, the plane maker's lobbyists, its supporters, labor interests and the governor's office haggled over the details of the snapback tax rate and conditions.
Boeing's labor unions and some Democrats sought to condition such a snapback on accountability measures to preserve local Boeing jobs or to require that Boeing build its next airplane model in the state. Meanwhile, some Republicans wanted a full tax incentive restoration, not just partial, in the snapback to improve the competitiveness of aircraft manufacturing in Washington state.
Neither of these parries was accepted in the final deal. The legislation headed to the governor's desk includes a provision to require Boeing to have a minimum number of apprenticeships in its workforce in order to qualify for a lower manufacturing tax rate.
"This legislation strikes a good balance," said Democratic state Sen. Marco Liias, the bill's prime sponsor. "Most importantly it protects jobs, our economy, and ensures that our trade-dependent industries don’t get caught up in this dispute."
Spokespersons for the Boeing Machinists union and the professional engineers union did not reply to requests for their reaction. The Boeing Company is Washington's largest private employer, but there is heartburn in labor circles that its payroll in the region has shrunk since it won the expanded tax break from the state in 2013.