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Funny Tax Proposals Still Alive at Legislature

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By Lowell L. Kalapa

With only a few more days left in this year’s legislative session, some strange tax proposals still remain alive and well and under discussion. While there are those who think that the objects of these tax proposals are worthy of consideration, from a tax and finance point of view they remain questionable in that they represent a poor use of the tax system. Among those measures is a proposal that would grant a tax credit to people who get certified in the skill of cardiopulmonary resuscitation. At one point the tax credit would have been set at $20 for completion of an accredited course. In the current version of the bill there is no amount specified, so lawmakers still have to discuss how much of the state treasury should be spent on this credit.

Now you would think that the very idea that one would learn these skills so that if the occasion should ever arise, one would possibly be able to save a life. In fact, as the representative from the American Red Cross who was testifying in favor of the bill pointed out, nearly 60,000 people in Hawaii take the course every year. But lawmakers seem to think that people should be rewarded with state tax dollars for acquiring skills that might save a life. Of course, the fact that this credit would cost the state $1.2 million each year doesn’t seem to make a difference to lawmakers who are struggling to find money for education.

Then there are all those tax incentive bills to “help” attract high technology companies to locate in Hawaii. The more laughable ones propose to allow high technology companies or biotechnology companies to sell net operating losses to either another company or another biotechnology company. Some bills limit the amount that can be sold to a half million dollars of unused losses at 50 cents on the dollar.

Of course, do you think lawmakers have thought about what this does to the differences between a federal and state return? No, all they seem to care about is that one other state has adopted this strategy and that if Hawaii is to compete for high technology companies, it has to adopt a similar provision. No one seems to ask the question as to what other states are doing about such a proposal. And does anyone have an idea of a profitable biotechnology company in Hawaii that needs to buy net operating losses than doesn’t already have huge losses of its own?

And while lawmakers whine about not having enough money to spend on education, mental health, social services, etc., they are willing to increase the recently adopted research and development tax credit for high technology companies by ten fold. The credit is hardly a year old with no track record and no idea of revenue impact or loss, but lawmakers are so desperate to show that they did something for high technology that they are willing to give away the store.

Then there is the proposal that would grant a tax credit either to a taxpayer who gets training or pays for training his employees in new technology skills. Sounds really great that here is a tax credit that would be given to compensate for the cost of training employees in high technology skills. But wait, there is a catch. In order to qualify for the credit, the employer must create a technology related job for the employees receiving training or the taxpayer paying for his training must secure a technology related job within one year after completing the training. Oh, the bigger catch is that new job has to pay 15% more than the taxpayer’s or employee’s previous job.

Somehow lawmakers seem to have lost sight of the reason why the tax system exists. They seem to believe that the tax system is a magic black box which can be used to transform the economic direction of the state if they merely provide all sorts of subsidies and grants by adopting tax credits and exemptions for specific taxpayers. In doing so, they don’t seem to see these tax incentives as nothing more than backdoor financing of specific industries or activities.

Would lawmakers be as eager and enthusiastic if these worthy causes were subject to the appropriation process? After all, that’s exactly what is happening with tax incentives such as tax credits. Would they be as gleeful in adopting these proposals if the proposition was: “Let’s appropriate $1.2 million for CPR training by cutting-back on books or chalk for teachers in the classroom.”

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