Those pesky tax incentives | Don Brunell

We need them to start big projects, no matter how much of a pain they may be in the future.

Those pesky tax incentives | Don Brunell

Darned if you do, or darned if you don’t!

That’s the dilemma elected officials face in determining whether to offer tax incentives for companies to locate in their city, county or state. That conflict played out recently with Amazon’s decision to cancel its second headquarters (HQ2) in New York City.

On the surface, it seems like a no-brainer. The city and state would extend $3 billion in tax relief to Amazon in exchange for $27 billion in new taxes and 25,000 good-paying jobs. However, the incentives generated heated opposition.

While government officials salivate over billion-dollar investments and can justify their investment returns, opponents believe the companies should pony up the start-up money on their own. Unfortunately, it doesn’t always work that way.

For example, when Boeing announced it would build a mammoth new plant to make its innovative 777X carbon-fiber wings, the upfront construction and outfitting costs were more than $1 billion. The Aerospace Futures Alliance estimated it would add 60,000 jobs and $21 billion in new economic activity.

Japan, Texas, South Carolina and Missouri were among the bidders. In 2013, Missouri Gov. Jay Nixon even called a special legislative session to approve a $150 million annual tax break to attract the project.

In response, Washington’s Legislature extended nearly $9 billion in incentives through 2040. That sealed the deal and today the new Everett plant is complete and Boeing workers are assembling planes. Boeing has nearly 350 orders. The first 777X delivery is scheduled for 2020.

In the late 1970s, Crown Zellerbach was faced with either closing or modernizing its pulp and paper mill at Camas. The mill opened before Washington became a state in 1889.

Crown either had to move production down river to its newer Wauna mill in Oregon, or spend $400 million (equivalent to $2 billion in 2019) to construct a new pulping system and install a large state-of-the art-business paper machine.

The company decided to modernize Camas even though the project would increase its property taxes four-fold and Oregon had no sales tax. Camas, because of its excellent workforce, existing air and water pollution abatement systems, and Washington State tax incentives, was selected. That investment extended the mill’s life by 40 years.

At the time of construction, the Camas modernization was the only major construction project in the northwest. The economy was lousy with double-digit unemployment, inflation and interest rates.

The state awarded Crown a sales tax exemption on new pollution control equipment and a sales tax deferral on the rest of the project. However, when the legislature ran into financial difficulties, it revoked the incentives. It sent the wrong political signal, and even though, a subsequent legislature restored them, it soured the company on investing in large projects in Washington.

Tax breaks are pesky and a pain in the neck for politicians. While it would be nirvana if all elected officials worldwide would get together and take a “No Tax Break” pledge and live by it, that is not the real world we live in.

Foreign companies, many with strong government financial backing, are constantly looking to lure new plants and jobs. Other U.S. states want Washington companies and are willing to provide lucrative tax breaks.

Whether we like it or not, companies look for ways to offset their enormous start-up costs. In Boeing’s case, bringing the 777X online costs billions spread over a decade. At Crown, it was over five years start to finish before a roll of paper came off its new machine.

Without tax incentives, some projects just wouldn’t happen or happen in Washington. Costs matter today even it means government incentives are part of the package.

Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.


Talk to us

Please share your story tips by emailing editor@courierherald.com.

To share your opinion for publication, submit a letter through our website https://www.courierherald.com/submit-letter/. Include your name, address and daytime phone number. (We’ll only publish your name and hometown.) Please keep letters to 500 words or less.

More in Business

Don Brunell
Hydrogen gaining momentum as replacement truck fuel | Brunell

Drivers that use hydrogen can “fuel up” faster, and energy can be stored indefinitely without loss.

Khun 9 at Dwight Garrett park. Photo by Ray Miller-Still
Khun 9 Thai food truck visits Enumclaw, Buckley

The food truck ventured outside Seattle when the pandemic hit and office buildings closed.

2021 Lexus RX 350L. Courtesy photo
Car review: 2021 Lexus RX 350L

By Larry Lark, contributor It’s always a good day when a Lexus… Continue reading

2021 Chevrolet Blazer. Courtesy photo
Car review: 2021 Chevrolet Blazer

By Larry Lark, contributor When it comes to certain car models they… Continue reading

2021 Mercedes E-350 luxury sedan. Courtesy photo
Car review: 2021 Mercedes E-350 luxury sedan

By Larry Lark, contributor Mercedes-Benz occupies rarified air in the automobile pantheon.… Continue reading

2021 Ford F-150 Platinum. Courtesy photo
Car review: 2021 Ford F-150 Platinum

By Larry Lark, contributor It’s always a call to action when a… Continue reading

737 MAX 7 Reveal - February 5, 2018. File photo
Boeing fined $2.5 billion for deceiving aircraft safety regulators

The Boeing Company has agreed to pay the Department of Justice over… Continue reading

Don Brunell
Bracing for bigger changes | Brunell

We need to rethink how we go about our lives — which means considering making remote learning and working more permanent.

Stock photo
State Department of Commerce awards grants to more than 7,800 small businesses

Newest $100 million grant round prioritized restaurants, fitness centers

Enumclaw Chamber of Commerce CEO Troy Couch will be handing the reins to Shannon Solveg, right, come Dec. 31. Photo by Ray Miller-Still
Local Chamber CEO retires

Troy Couch is handing the helm of the Enumclaw Chamber of Commerce over to Shannon Solveg tomorrow, Dec. 31.

Don Brunell
Wildfires were the ‘big polluters’ of 2020 | Don Brunell

COVID-19 might have done a number on the economy, but wildfires took more than 8.6 million acres of land this last year.