Should Tax Policy Serve as Industrial Policy?

February 13, 2006

The House of Representatives in the State of Washington passed its tax bill for Fiscal Year 2007. Check out some of these odd proposals to change the tax code of the state, courtesy of The Olympian:

$200,000 cost to eliminate tax exemptions for livestock manure management and purchase of anaerobic digesters, replacing it with a refund program.

$7.3 million in business-occupation tax credits for restaurants and similar businesses that buy syrups used for soda pop.

$2.3 million worth of sales- and use-tax exemptions for facilities, machinery or equipment used to condition vegetable seeds in rural or distressed counties.

$1.1 million worth of business-and-occupation tax reductions and tax credits for aluminum smelters, extending tax breaks set to expire.

A $225,000 reduction in business-occupation taxes for the inspection, testing and labeling of canned salmon.

$300,000 exemption from the retail sales and use tax for wood waste boiler equipment used to generate steam. (Full Story)

Filled with deductions and various specific incentives for certain companies and industries that are not provided to other companies or industries, these specific “breaks” are merely the government controlling the allocation of resources through the tax code. Many on both sides of the aisle often call any deduction good policy because it is cutting taxes for someone. However, with the government initially taxing everyone at a high rate, then deciding arbitrarily who gets something back, this is essentially central economic planning by lawmakers — something few policymakers would be willing to explictly endorse if not disguised in the tax code.


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