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Yesterday’s Approach Hinders Tomorrow

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By Lowell L. Kalapa

Now that lawmakers and the administration have revealed the “plan” to get Hawaii out of economic disaster, voters will have a chance to assess whether these ideas will indeed bring about economic recovery.
While the centerpiece of the “package” of bills was a massive increase in the state’s capital improvement program, the amount was pared back from $1 billion as proposed by the administration to $100 million. However, provisions were made to authorize the construction of a wellness center that would also encompass a new medical school.
Also included in the package of bills is a spate of measures which provide temporary support and assistance to those who have lost their jobs such as temporary health insurance coverage, assistance for housing and extended unemployment insurance coverage.
To aid the visitor industry, the package includes appropriations for increased security at the state’s airports and promotion of the safety of Hawaii’s airports as well as an added boost for visitor promotion. And what seems to be a spin off of the old WPA program established during the Depression by the Roosevelt administration, a state work program that would hire temporary workers to address recent environmental issues such as miconia and dengue fever outbreaks.
What is more interesting are the four tax bills that are supposed to provide tax relief and economic stimuli. On the tax relief side, one measure proposes to raise the thresholds that determine whether taxpayers have to make monthly, quarterly or semi-annual payments of income withholding taxes, general excise taxes, transient accommodations taxes and/or the tour vehicle and rental car surcharge. While the taxes would still be due, the change would mean taxpayers have a longer time to play the “float” before having to pay those taxes. The concern is that taxpayers may not set the money aside to pay the tax.
Another bill would move land carriers, like trucking companies and tour bus companies, as well as water carriers, like the interisland barges, from the public service company tax to the general excise tax. This would provide one-time tax relief because the public service company tax is based on income earned in the prior year but paid in the current year. The general excise tax would be paid on current income.
The two other tax measures offer tax incentives in the form of tax credits. One would basically exempt capital gains realized on the sale of business property if the investor purchases that property between November 1st of this year and the end of next year. The exemption comes in the form of a tax credit equal to the amount of capital gains taxes that would otherwise be due the state. The other catch is that the credits would only be available for tax years beginning before the end of year 2011. So basically those investors who make an investment within the window of opportunity have to sell that investment before the end of 2011 if they want to take advantage of the capital gains tax credit.
The other bill would grant a 4% tax credit to homeowners who undertake construction or renovation of their homes during the time period between October 1st and the first of July next year. At a parallel pace, the hotel renovation tax credit will be sweetened for any renovation costs incurred between now and July 1st from 4% to 6%.
With such a short window of opportunity, probably only those homeowners and hotel owners who already had plans to undertake renovations will be able to avail themselves of this new tax incentive. While the tax credit may encourage some who might have canceled plans for remodeling or construction, the short window may not be enough time to generate new renovation or construction, given the delays attributable to building permits and securing financing.
Many of these proposals are re-runs of ideas previously submitted to the legislature. Unfortunately, while they may seem like the economic issues are being addressed, they do not represent the bold thinking that others around the world are undertaking. Notice that no one talked about cutting back on government spending until the special session was underway. Now more than ever, lawmakers need to talk about making government more efficient so that it can operate on less, opening up the possibility of providing real tax relief by cutting tax rates. A novel idea indeed for state lawmakers.

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