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March 29, 2012 at 11:45 AM

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McKenna backs ending tax break for big banks

Republican Attorney General Rob McKenna on Thursday said he supports ending a controversial tax break for big banks that has long been targeted by Democrats in the Legislature.

The tax exemption gives a deduction to banks on interest earned on first mortgages. Its goal was to help local banks while also encouraging home buying.

But ever since the collapse of Washington Mutual, Democrats and liberal activists have agitated to end the break -- pointing out that most of the benefit flows to big out-of-state banks with little if any benefit to the public.

McKenna now says he agrees the break should be repealed.

"The tax preference doesn't seem to be achieving what it was supposed to achieve," he said Thursday morning in an interview following an education event in Seattle.

The break has grown increasingly unpopular in Olympia. This year, House Republicans agreed it should be pared back so that only smaller community banks receive the benefit. With the Legislature still stalled in a special session, the fate of the bank exemption remains unclear.

Ending the tax break for big banks would bring in about $20 million a year, according to state Department of Revenue estimates -- not enough to make a big difference in the state's ongoing budget shortfalls.

In his campaign for governor, McKenna has generally refused to consider tax increases to pay for his ambitious plans to devote more money to public schools and universities.

But McKenna has said he's willing to examine tax loopholes and consider ending those not providing much public benefit.

His Democratic rival, Jay Inslee, has also specifically pointed to the bank tax loophole as an example of unfair tax breaks that are hurting the state budget.

Inslee and McKenna appeared this morning at the Alliance for Education's annual fundraising breakfast in downtown Seattle.

In separate, brief Q&As with KCTS 9's Enrique Cerna, both candidates pledged to make education the top priority as governor.

"This is going to be the first gubernatorial campaign in at least 20 years where our public schools are the number one issue in the election," said McKenna.

Inslee said he will roll out his education plan next week, which will include a new grant program to fund innovative school programs to boost graduation rates and education quality.

"I am going to ensure that the creativity that exists today in small places takes root in large places across the state," Inslee said.

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