What exactly is a tax loop hole anyway?

With so much heated rhetoric surrounding loopholes and the impact that they might be having on our tax code, it would be useful to spend some time getting at the heart of what a loophole, exemption, tax giveaway, or whatever you want to call it is.  For my purpose, I call it an exemption. However, a clear understanding in this department might make for more informed debate about the future of exemptions in Washington State. 

To date, there are 640 exemptions on the books in Washington.  Of those, 452 would likely increase revenue collections for core public programs if eliminated.  These exemptions can be found throughout the Revised Code of Washington (RCW).  The majority can be found in Title 82 and Title 84 of the RCW. 

Washington’s tax code has become riddled with exemptions.  So much so that in order to keep track of these exemptions and their complexity a full report must be written every 4 years by the state’s Department of Revenue detailing the presence of exemptions in our tax code.

These exemptions stand as a testament to our state’s changing culture and economy.  For example, RCW 84.39.010 provides for a property tax exemption for widows and widowers of U.S. Veterans. Another example is RCW 82.48.100, which provides an excise exemption for aircraft under specific circumstances. The list continues to a sum of 640 exemptions--452 of which would generate revenue if eliminated. 

After spending time with the list of exemptions, it becomes clear that this list is indicative of communal priorities.  Behind each of these exemptions, there was an influential voice that saw value in adding a specific exemption to our tax code.  A cynic would argue that these exemptions are the legacy of effective lobbying and special interest groups that cater to big business in the state.  An optimist would argue that these exemptions reflect the majority will of the tax paying public and were established through careful conversation and exploration.  Regardless of your perspective, it is hard to ignore the implicit values behind each of the 640 exemptions.

The property tax exemption for widowed spouses of veterans is a good reflection of a community that looks to honor and protect those that served.  The aircraft exemption is indicative of a set of priorities that includes the importance of business and ensuring that our state retains its competitive edge.  

Exemptions and their impact on our states revenue collections have battled with government efficiency for the center stage spot light during this recession in Washington State.  The exemptions debate has played out in the legislature, the courts, and the public through the initiative process.  Before entering into a tax reform discussion, background orientation will not only better inform debate, but may illuminate avenues for coping with future economic downturns.