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Boeing $8 Billion Tax Break to Get Washington State Scrutiny (2)

Dec. 4, 2019, 9:46 AMUpdated: Dec. 4, 2019, 10:23 PM

The shape of Boeing Co.'s $8.7 billion package of tax incentives is on the line in Washington state’s Legislature, where a joint committee recommended Dec. 4 that the full Legislature decide whether to tie the benefits to the size of the company’s local workforce.

The company is the state’s largest private employer, with a workforce of more than 69,000. However, that’s about 16,000 fewer people than it employed in Washington in 2012—raising questions about whether the incentives have achieved the goal of “maintaining and growing” the aerospace industry workforce.

The package of tax credits, exemptions, and a reduced business and occupation tax rate was expanded in 2013 and extended to 2040 to entice the company to assemble its new 777X aircraft in Washington and build its high-tech wing factory in the state.

Members of the Joint Legislative Audit & Review Committee unanimously recommended that the full Legislature clarify expectations for Boeing to keep its tax advantages.

Rep. Noel Frame (D), a member of the committee, said after the meeting that she has yet to decide whether she will sponsor a bill to claw back Boeing tax preferences based on the reduction in its workforce. Frame said she wants to talk to colleagues and take into account a World Trade Organization ruling that Washington gave illegal subsidies to Boeing and the European Union gave illegal subsides to Airbus.

Stemming Losses?

“It’s unclear whether the preferences prevented greater job losses,” the committee’s staff concluded. “If the preferences led Boeing to remain in Washington, they may have kept the state from losing more jobs. If not, they reduced government spending and may have contributed to job losses.”

The committee’s chairman, state Sen. Mark Mullet (D), said in a Nov. 21 interview that he would not be surprised if a claw-back bill is introduced.

“I think there is a large majority of them that would like to see a claw-back provision,” Mullet said of his Democrat colleagues. “It’s not a position I support.”

WTO Ruling in Play

The reduced tax rate saved Boeing $99.5 million in 2018.

A WTO arbitration panel is expected to rule sometime early next year on what retaliatory tariffs the European Union may impose on U.S. exports in response to the preferential B & O tax rates.

When the WTO first ruled on the matter in 2016, Airbus Group General Counsel John Harrison said in a Nov. 28 press release that “The United States has no other option than to direct that Washington State repeal the legislation or amend it in a way that makes it WTO-compliant.”

The WTO gave the Trump administration a green light in October to impose tariffs on European exports worth as much as $7.5 billion in retaliation for illegal government subsidies to Airbus. The U.S. and EU will seek to reach a mutually agreeable solution, but the timing of that will depend on how bilateral talks go between EU Trade Commissioner Phil Hogan and U.S. Trade Representative Robert Lighthizer.

A ‘Mugging’

The political ground has shifted substantially in Washington state since the subsidies were enacted. Gov. Jay Inslee (D) was a driving force to pass the incentives to ensure the 777X was built in Washington.

In 2016 he said the incentives were “the right thing to do for our state’s economic future and it still is.”

Inslee changed his tune last March.

While campaigning for the Democratic presidential nomination, he likened Boeing’s actions surrounding the tax break to a crime.

“If you’ve ever been mugged, you know what it feels like,” Inslee said during a March appearance with TV host Trevor Noah. “Well I was not happy about the Boeing situation. Because what happens is these corporations put a gun to your ribs and said you’re going to lose 20,000 jobs unless you get a tax break.”

Tara Lee, the governor’s acting communications director, declined to say what kind of Boeing tax bill Inslee would support. “We are aware of the situation and we continue to consult with U.S. Trade Representative to explore our options,” she said in an email.

Mullet, who’s also the Senate majority whip, said, “to come back now and ask for clawbacks would be reneging on the deal we reached in 2013.”

Boeing didn’t reply to a request for comment.

In October, Boeing spokesman Paul Bergman said that the incentives “are working as intended.”

“Aerospace employment in Washington is up 38% since the incentives were enacted in 2003. These are good jobs with average wages over $100,000 and benefits that exceed those provided by other industries,” he said.

If the state ends up having to rescind Boeing’s preferential tax rate, Mullet said the Legislature could opt to offer the same break to more companies.

“The most business friendly way to fix that is to make all the manufacturing sector have that same rate,” Mullet said. “I think that’s a couple of hundred million bucks in the budget cycle to give that Boeing preference to the entire manufacturing sector.”

(Updates with results from JLARC meeting.)

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editors responsible for this story: Katherine Rizzo at krizzo@bgov.com; Kathy Larsen at klarsen@bloombergtax.com; Jeff Harrington at jharrington@bloombergtax.com

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