The rain tickled my bedroom window, prodding my eyes open hours before the alarm, and I found myself looking out over the city made famous by software, coffee, e-commerce and airplanes. At a moment of ultimate, quiet solitude, looking from my bedroom window at the iconic Space Needle, Mt. Rainier and Elliot Bay, I was somehow pulled outside of my comfort zone as a husband, father, entrepreneur and citizen legislator blessed with good fortune. My shoulders arched and tightened as I thought again of the unknown fate of 276 girls in Nigeria kidnapped by radical Islamists to serve as child brides. I checked the hashtag #returnourgirls and wondered why the social order seems so chaotic and vicious and random.
One day earlier in the Spring the hashtag grabbed me by the throat–mostly as a father of three girls and one boy–and pulled me to consume everything I could find as I hungered to track of the plight of the Nigerian girls.
Somehow, the juxtaposition between my blessed childrens’ safe, pleasant and decidedly traditional life in Seattle and the global darkness of child prostitution, human trafficking and forced marriage physically jarred me awake that morning. I stood silently at the window, and thought of my children’s lives. As I hover as a parent to my own children, I am consumed with concern of those young innocent girls trapped in the desert, so unlike my eldest daughter’s powerful summer of spiritual discovery spent hiking in the desert in Israel, camping under the stars, learning the reality of the grown up cliché that less is truly more.
My children’s family and friends, courses in school, religious school volunteerism, community service and track and field define how they spend their time, but I pray they discover the DNA of their soul, the spirit of their passions, the heart of their convictions—the intangibles of this life—and they learn to listen to the small, still voices within them. That voice calls on them to explore, unleash and connect to lifelong learning and education and discover what they cannot yet see.
I know there is a girl in Nigeria listening to her small, still voice at this very moment in the darkness of despair. Across the world, across silent time and place, holding on with the tips of her fingernails to the dignified idea that she matters. Maybe together, somehow, she and my own daughters and son can unleash a world where equality is more than a song.
She lives in us.
Your partner in service,
Amgen recently jolted the Seattle community with a stunning, unexpected announcement that they are pulling out of Washington State and terminating employment for the remaining 660 employees as part of a downsizing of 2,900 employees or 15% reduction nationally.
My first reaction to the news was pure sympathy for the employees and their families. During a bike ride this weekend in my Queen Anne neighborhood, I quietly looked over Amgen’s stunning research and development facility–a beacon of global biomedical quality–and reflected upon the social contract between the company and taxpayers of our city, state and country and my role as chair of the Finance Committee. And my disappointment turned to frustration, a sentiment that USA Today picked up in their story.
Immunex, an anchor of Seattle’s biotechnology and biomedical community since it’s founding in 1981, was acquired by a main industry rival Amgen in 2001. At the time of the deal worth approximately $16 billion in stock, Immunex had 1,500 employees, a number that was paired down to approximately 750 for the past decade. In addition to the direct employees, Immunex and Amgen generated substantial economic, social, financial and community value as an important part of our state’s civic life–and much good will. Amgen’s political relationships have been stellar and successful, their support for innovative community programs such as AmeriCorp’s City Year have been impressive, and their employees have made our city a better place to live.*
Despite a well established trend in big pharma (Pfizer, Sanofi, Novartis, etc.) that shows companies pulling back from R&D and retreating to primary research hubs, social and traditional media–including the Seattle Times’ normally more critically insightful, intellectually curious Jon Talton–soon raised the question of whether state tax policy played a role in the company’s decision to leave Washington, casually alluding to an operating assumption that the state didn’t do enough to lower the tax burden on the company.
My personal and professional mission as Finance chair is to institutionalize a more rigorous level of analytical, financial and intellectual analysis of our state tax policy to match what we expect of state spending policies.
So let’s go beyond the headlines into the Amgen story and examine it’s relationship with state tax policy.
It’s not public information how much Amgen pays in various Washington taxes, although I seem to recall the company says in its SEC filing it pays approximately 9% effective tax rate in total state taxes. I continue to believe that such information should be transparent at the individual state level for publicly-traded companies which inarguably release much more specific confidential data as part of their SEC filings.
What is public, however, is that the company has since 2004 been the third largest recipient of the high technology sales tax deferral program, a tax credit I have argued should be targeted primarily at small and early stage companies. For early stage and small companies, a modest tax reduction can have a major impact given that we tax on GROSS receipts not net profits and the dollars are usually directly invested in more engineers, scientists and researchers.
The company’s average benefit from the state tax benefit is $3.6 million per year, for a total of $28.5 million between 2004 and 2011. In 2013 the global earnings for Amgen were $18.7 billion, a 8% increase from 2012. The stock is trading at an all time high as the USA Today story duly noted.
Did the $3.6 million annual tax benefit play a role in the company’s business decision to leave Washington?
Don’t kid yourself.
The company told me that Washington state tax policy in no way played any measurable role in this sweeping national business decision.
And, of course, on the surface it’s patently ridiculous to consider that $3.6 million state tax benefit against revenues of $18.7 billion means anything substantial when you consider that: 1) Washington is strictly a R&D facility, so revenues are naturally likely assigned, as with virtually all pharmaceutical companies, out of state or even the country and 2) Colorado has a generous high technology tax credit and yet the company closed their entire operations in that state, too.
It’s important to note that corporate taxes are paid in B&O, property, sales and excise taxes and each company is different. The list of companies claiming this benefit includes many well known Washington State firms. The program is slated to end January of 2015 since it was not renewed by the Legislature. For three years I actively led discussions to renew the R&D tax program for small, early stage companies–those for example where $30,000 tax reduction could help pay for another researcher– while asking large-scale global firms to contribute those tax dollars to higher education and the University of Washington to help produce more electrical, mechanical and industrial engineers. Those negotiations fell apart although efforts are underway to rejuvenate aspects of the program.
Sometimes state tax policy plays a large role in business decisions and sometimes it’s completely irrelevant or secondary at best. But it’s too easy for pundits, lobbyists and elected officials to jump to unsubstantiated conclusions that the most important way to successfully recruit and retain great companies to the state is to lower or eliminate taxes when the data doesn’t support that position.
It’s a tired, shallow argument that doesn’t stand up to analytical rigor, and it’s not based on data or reality.
The relationship between Amgen and Washington has been mutually beneficial and compelling. The people and company will be sorely missed. The Immunex and Amgen journey has been a testament to our city’s creative energy and spirit in the biotechnology and biomedical space, and our future is just as strong as before, but a little sadder with this loss.
The taxpayers of Washington directly subsidized Amgen’s R&D operations in the state through a minimum of the $28 million state tax exemption program and the city’s contribution of $19 million in public infrastructure.
If it was a larger subsidy would they have stayed? If it was smaller would they have left the state earlier than 2014? Did it contribute to an intangible, positive business climate that made a difference? How can we know if we’re not in the private executive offices of the company? We can’t and, not surprisingly, the state tax program had no meaningful metrics or analytics from which to judge success of creating jobs.
That’s why we should openly acknowledge that while small companies are often disproportionately impacted by tax policy, large multinational companies are rarely impacted by state tax policy in ways that drive their major national and global business decisions.
Arguing against this case is the Boeing story which, of course, can be debated at length and state tax policy may have indeed been a central criteria to their siting decision. In that case, nearly everyone blinked and wasn’t willing to take the risk of losing the 777x, 130,000 aerospace jobs and descendent airplanes to test the notion.
What should we do? Let’s stop pretending that state tax exemptions and benefits are central drivers of a vast majority of large-scale global business decisions–or at least let’s require disclosure of the data that would make the case.
Let’s focus our policy efforts at the state level on ensuring Washington has a world-class education system from early learning through higher education, quality public infrastructure and quality of life that attracts and retains the best and brightest entrepreneurs and citizens.
And for what it’s worth, there is also an opportunity cost to the financial cost of tax exemptions. For $3.6 million a year we could have paid for each foster youth that graduates high school annually to attend the University of Washington.
Your partner in service,
* I have received multiple campaign contributions from Amgen, served as a citizen co-founder of City Year, and am a shareholder in the company.
Today’s massive layoffs at Amgen are devastating news for the 660 people who work at the Amgen facility in the Interbay area near lower Queen Anne, the 660 individuals across Washington State, and the 2,400 – 2,900 employees nationwide. I offer my deepest sympathies to them and their families as these impending impacts ripple through personal finances and tightly-knit communities. You are in our hearts during this difficult time.
Amgen has been an extraordinary community partner and was an honorable successor to the Immunex story of innovation. I’m deeply saddened by the business cycle challenges the company is currently facing, a tough reality facing many in the sector as various drug innovations rise and fall with the market and health impacts. Their presence in the heart of Seattle will be profoundly missed, and we all hope the Amgen story can one day soon continue in our state.
Behind every headline of layoffs are real people living real lives. Today’s announcement is not about tax policy, infrastructure of education, it is about the painful decisions that are tied to the business realities facing the company. Neighbors, children, schools, parks and communities are all impacted. We offer our hopes that the Amgen family can rebuild, and that the individual families impacted can move forward in positive ways to build not only the biotech and biomedical community in Seattle, but to continue their powerful work to transform lives for patients across the globe.
Your partner in service,
The sheer irony of today’s oil train derailment under the Magnolia Bridge–in the heart of Seattle– at the very moment a major study is being released blocks away outlining the severe economic, transportation and infrastructure costs to the life of our state is stunning.
I doubt Jon Stewart and Stephen Colbert could dream up a more jolting juxtaposition than today’s events.
The Puget Sound Regional Council released an independent, rigorous, detailed study today analyzing the impacts of the proposed coal exports. If these sweeping proposals are enacted over the objections of millions of our citizens, Washington State is poised to become the number one exporter of coal and oil in the nation. This valuable data directly shows that the economic benefits of the proposals are pennies on the dollar compared to the shockingly expensive costs. The modest, short term benefits are highly concentrated in rural areas of Whatcom County while the costs are trapped in virtually every community from Spokane to the Columbia River to Clark County up through the I-5 Corridor of Thurston, Pierce, King and Snohomish counties.
This report is an important piece of a much-needed apples-to-apples comparison of the net benefits versus the total statewide costs. Twenty three legislators signed a letter to the governor asking for this type of analysis, so we are grateful for PSRC’s leadership to conduct the work directly. For instance, will the increased economic activity outweigh the gate downtimes at crossings, which will increase by an overage of 65% by 2035, some as long as an 1 hour and 45 minutes? To make a truly informed, responsible decisions, we must weigh the total benefits of these projects with the statewide costs.
Thankfully our community was spared any catastrophic consequences during today’s derailment, as no one oil was spilled nor was anyone injured. But this accident is a profoundly important symbolic representation of the reality before us and the need for diligence in moving forward safely.
One of the most important lessons for our state is that we must pass comprehensive safety legislation, The Oil Transportation Safety Act, HB 2347, to responsibly manage the increased threat of oil spills in our backyards.
Oil and coal exports are a 19th Century idea in a 21st Century global community.
We are better than this as a community and as a state. I am personally and professionally committed to continuing to partner with King County Executive Dow Constantine, Mayor Ed Murray and my legislative colleagues and others on this important issue.
Your partner in service,
Two of the leading national think tanks on tax policy from the left and right are engaged in an interesting policy and financial discussion of the merits of a state-level flat rate tax. The Center for Budget & Policy Center looks at Illinois’ flat-rate structure and finds it contributes to income inequality in the state, while the Tax Foundation offers a rebuttal on its blog that a flat tax is the least damaging to broader economic growth. The idea of a flat tax at the national level never seriously took hold when Steve Forbes burst on the scene with the platform in the 1996 presidential race, but the topic may be more relevant at the state level today where we can see and feel the current complexity, inefficiency and inequity up close.
In the coming years, a state-level flat tax conversation could be particularly relevant for Washington, given that our constitution requires uniform rates similar to Illinois, and that almost without exception the large number of independent state tax studies since 1921 have suggested Washington diversify its revenue structure by including some sort of related tax and in parallel reduce our sales taxes, property taxes, business taxes or some combination. Under the constitution the rate may not exceed 1%, the same limit for property taxes.
The Washington, D.C.-based think tank debate is particularly useful today for Washington State–in a post McCleary era–and raises the question of whether our sales and B&O-based structure is, in fact, so complex, economically inefficient and inequitable–so overwhelmed with political carve-outs and exceptions–that even a modest flat rate would substantially help the structure to be more efficient, equitable and beneficial.
One of the most compelling aspects of a flat rate should be the essential ingredient of simplicity–a description that would never be used to describe our system today, especially for small business.
I have long believed that the most simple, economically efficient and equitable structure would be low tax rates broadly applied (across consumption, wealth and income), with few carve-outs and exemptions, and a handful of progressive elements to off-set the equity challenges.
It would, more than anything, help to depoliticize the tax structure, offer less volatility and a better structural alignment with today’s economic activity that is based more on services than goods.
Still, all 50 states have learned the danger of a heavy reliance on any one leg of the chair–sales, property, income, business–weakens the stability and sustainability in the long run.
Ensuring that the overall level of taxes is not an outlier in either direction–too high or too low –is vital to meet our state’s needs and maintain the quality of life our citizens expect. That’s why reviewing the data through a personal income level matched against tax obligation or burden is a good approach. Another viable model is per capita and both have merit.
One of the attributes of a quality tax system is that revenues match up with general growth and economic activity in the economy at large without becoming an outlier that in turn becomes a true market distortion. The metric of tax to personal income has a particularly strong link and is thus a good measure.
Thus, on a personal income level, according to the U.S. Census, Washington ranked 36th in the nation in 2011, or 28th if the data is adjusted further by the Tax Foundation, but nonetheless down from approximately 11th in 1995. On a per capita taxation level, we are 21st in the nation, down from 16th in the nation in 1996.
This means, in effect, that for a total of $1,000 in personal income made, a taxpayer in Washington will pay about $94 in all state and local taxes combined to fund education, universities, parks, health care, nursing home services, prisons and other essential city, county and state services. While the state portion of that level has decreased, the local portion has increased since 1981, primarily due to local school levies and local sales taxes.
Overall, it is undeniable that revenue collections are at historic lows when compared to the broader economy. If revenue collections were simply the same rate as in 1990– about ~7% of personal income–then Washington would have up to an additional $15 billion dollars in revenue this biennium, according to the Office of Financial Management, that could arguably fully fund basic education, dramatically expand access and affordability of the University of Washington and higher education, modernize our relationship with local governments statewide, and meet other critical needs. Our current biennial budget is close to $35 billion, so the numbers are staggering. Some would argue, of course, that our economy has grown in part because the tax rate has fallen so far, an important argument that deserves a seat at the table.
Still, given the reality of these numbers it is difficult at best to make a strong case that Washington is anything other than a modest to low tax state. And this says nothing of the fact that we are consistently rated #1 in the nation in the level of regressivity by all sides.
We could not design by choice what we’ve done by chance: A system that is complex, inefficient and inequitable that fails to fund our 21st Century needs.
The McClearly decision by the State Supreme Court to fund public education–an additional $2.4 billion to $3.5 billion by 2018– provides us with an opportunity to rethink our clunky structure and not merely the level of revenues themselves.
The traditional approach to incremental state revenues for public education–economic growth dedicated to education, closing tax preferences, adding sales tax to business or consumer services, raising one business rate versus another, dedicating potential new sources of revenue from marijuana legalization or Internet sales, shifting obligations to local governments or between the state and local school districts–fails to capture the historic opportunity for modernization that stands before us in the years to come.
This is merely to suggest a well designed flat rate tax structure could add an important element of simplicity, equity and economic efficiency that we currently lack. It is our consumption oriented system without balance that is so dramatically inefficient and inequitable. As economist Thomas Piketty’s sweeping “Capital in the Twenty-First Century” indicates with impressive data, the rate of growth of income is several times larger than the rate of growth of the economy at large, including wages. In our state, we fail on both accounts and instead tax select elements of consumption almost exclusively.
Of course, legislators and the people of Washington would consider tax modernization only with thoughtful, responsible protections to ensure any new structure wouldn’t simply be incremental to our existing complex web of sales, business and property taxes and add little in the way of balance. Former Gov. Dan Evans frequently noted that this was the missing link in his tax modernization and reform work in the early 1970s.
Our good friends in Idaho, interestingly, have by almost any standard a more balanced, economically efficient and equitable design than outlier-neighbors Oregon and Washington.
To reach a grand compromise, the political challenge in designing a modern tax structure is likely for the left to be more sensitive to questions of economic efficiency and for the right to be more sensitive to questions of economic equity.
We need a simple, efficient, equitable and modern tax structure that meets the long term needs of the 21st Century, not just an important court case before us today.
We are so much more than what we’ve become.
Your partner in service,
Serving in our Legislature is an honor. It is hard, complex, painful work for citizen legislators such as myself who maintain professional lives and busy families outside of Olympia. But the work of civic engagement is vital to our democracy.
After much consideration and reflection, I have decided to run for re-election to the House of Representatives. I had seriously considered running for the Senate this year but will not do so.
While I believe I could play a substantive role in the Senate toward progress on the central issues we face in Washington–the structural issues of education, tax modernization and quality of life—I accept the argument that with Democrats across the state working mightily to regain the majority, this is not the time to negatively impact swing district races that Democrats can and must win.
The 36th District, with 80% Democratic affiliation, realizes a 90% registration rate and 90% turnout rate in presidential years. We expect and deserve an open, vibrant civic dialogue. Campaigns are healthy for our representative democracy.
On a profoundly deep and personal level, I considered running for the Senate to help elevate the dialogue in that Chamber about the need for structural modernization of our tax system in order to meet our constitutional obligation to fund our paramount duty of public education. Our educational system from early learning through K-12 and higher education is reflecting the fact that we are on the march toward being a low tax, low service, low quality of life state. We are better than this as a state. We must enable our kids to have access to the opportunity of a world class education. We rely on tens of thousands from outside Washington to fill our best jobs, and soon we will reach a tipping point when our own children will find themselves unqualified for the best of the best and unable to achieve their dreams.
I have long expressed my personal respect for Sen. Jeanne Kohl-Welles and my consideration of a campaign was no reflection otherwise. She is a good and caring person who works hard and cares passionately about our community. I endorse her for re-election for another term without reservation.
We have fallen from 11th in the nation in 1995 in personal income level of taxes to 37th today and, as a result, we have hurt our quality of life. We cannot continue to have Somalia level taxes and Denmark level services. While the Republican Party has become addicted to an anti-tax ideology almost regardless of data, reason or qualification, our own Democratic Party has become the party of government, too often willing to defend only equity, and not efficiency and legitimate reform.
We must confront these systemic challenges and seek a more entrepreneurial, energetic, moderate and responsible path together between the parties.
A grand bargain of policy is possible to fund and improve education but only through collaboration and consensus. We can move from an embarrassingly low level of high school graduation rate toward the top. We have it within us as an engaged, progressive, civically alive community.
Like so many others around the nation, I worry deeply about our addiction to campaign money and the impact of special interests on all sides. It is unfortunate that campaign financing now stands as a barrier to a healthy dialogue about real issues in even legislative races.
Our state is at a crossroads between mediocrity and greatness, and we are consumed with an attachment to the status quo of fear of change. We need citizen legislators who are impatient for big thinking, big improvements and real steps forward in quality of life. State government is lethargic and afraid of systems change. I will continue to fight to make major structural improvements that help real people living real lives everyday as I have since my first election.
I am honored to represent the people of the 36th District and look forward to continuing to do so.
Your partner in service,
(This blog post discusses campaign activity but is normally reserved for non-political topics.)
Post session analysis of the performance of the 2014 Legislative Session has generally landed with a thud. It has been faint praise at best and, in most cases, seem at least a fair reflection of the Legislature’s 60-day status quo standoff that I have described as a draw.
Rep. Ross Hunter’s always-thorough, straightforward budget analysis with some key victories is here. Crosscut’s take on a ‘largely unproductive session’ is here. The Seattle Times weighed in with “Olympia failed” here and here. “Unremarkable” was the Washington State Wire’s assessment.
Here’s some of what we got right:
- $58 million investment in K-12 supplies, books and technology, a modest part of our McCleary obligation.
- Significant steps on mental health beds at the community level.
- 5000 new slots for services to our developmentally disabled community, taking a big bite out of the “no paid services” wait list.
- We added ‘extended foster care services’ for a large number of foster youth who turn 18, are working close to full time, and still have nowhere to turn so they can stay in housing until age 21. Thanks to the Mockingbird Society for unrelenting leadership on that front.
- We passed the Dream Act, enabling all students who attend Washington K-12 schools regardless of immigration status the opportunity to access college scholarships.
- The 24 credit bill requires higher graduation credits (up from 20) matching a more rigorous standard, although the bill could have been stronger still.
- We invested $25 million in the Opportunity Scholarship Fund, a public private partnership to invest in college scholarships for high potential low income youth.
Our list of unfinished business for 2014 and even the 2015 session is painfully long:
- The state may lose a No Child Left Behind waiver, and flexibility in how to spend about $40 million, due to lack of agreement. It may lead to nearly 2,000 state schools being declared ‘failing’ and notice sent to parents.
- The Senate’s push for more tax preferences and the House’s advocacy of closing tax preferences resulted in a draw, and was a challenge from the beginning. No more exemptions created (a first!) but no new revenue to invest in public education. This sets the stage for a serious discussion going into 2015 about how to fund McCleary, the Supreme Court’s education ruling.
- We took a run at closing tax preferences to fund long-overdue cost of living increases for teachers, but failed to budge Senate negotiators.
- The lack of a statewide transportation package continued despite much posturing from a Senate that couldn’t muster the votes. In a parliamentary system, their government would have fallen over the issue.
- We failed to reach agreement on a medical marijuana package despite a bill receiving an impressive 2/3 vote in the Senate. The House GOP locked up against the bill leaving the system prone to federal intervention. Hopefully a compromise package will surface in 2015 once we can reach consensus and have sufficient data from which to determine our state’s direction.
- We failed to adopt a supplemental Capital Budget to invest in our public infrastructure.
My hope is that we can come to better appreciate the strength of each party, each chamber, each individual legislator as we move into elections and the 2015 Legislative Session next year. It is time, simply, for many in Olympia to accept that we live a time of divided government and consensus must follow if we are to move forward together.
As Chair of the Finance Committee, I have worked hard to elevate the level of analytical, financial and intellectual rigor around our state’s tax and budget policies. While we made meaningful progress on a number of initiatives, I’m genuinely disappointed that the Senate failed to even consider my major tax transparency legislation House Bill 2201 that passed off the House floor. I ensured most Senate GOP tax bills at least received a public hearing and committee consideration. My tax transparency legislation would have allowed the public, for the first time, to see the details and value of approximately 120 tax preferences (of the 650-plus total exemptions) that are specifically designed around economic development. Who benefits and for how much? Which companies receive which tax preferences and at what cost to the public? Today, we are not allowed to know the answers.
We are so much more than what we’ve become.
Your partner in service,