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Hardly Anyone Cares About Good Tax Policy

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By Lowell L. Kalapa

     The recent veto of the tax credit that would have been granted to the developers of the Ko’Olina resort seems to have sunk to the abyss of partisan politics with nary a glance at what that measure meant to the tax policy of the state.
In fact, a number of measures approved in recent sessions of the legislature appear to have thrown good tax policy to the winds. The Ko’Olina tax credit underscores this lack of recognition of good tax policy. Probably the most blatant aspect of the proposal is that is a 100% tax credit. Unlike other tax credits which have been adopted as an incentive to get the taxpayer to alter behavior, this credit is designed to give back every cent spent on the project up to $75 million. It is not a percentage of the cost of building the proposed world-class aquarium, rather the intent is to refund any and all costs up to the ceiling.
The tax credit is nothing more than a “backdoor” appropriation of public dollars. Would the project have gained approval if lawmakers were asked to appropriate the money either in cash or borrowed funds? If the project was worthy of public support, then an appropriation of funds or the authorization of bonds should have been the more accountable means of funding this project.
By subjecting the funding to the appropriations process or the authorization of debt, it would be measured against all the other demands on state funds. For example, would there have been as much ballyhoo about the $8 million for the purchase of the land under the Japanese Cultural Center as there would be for the Ko’Olina proposal?
Accountability also applies to the oversight of what is being had for the amount of the tax credit being granted. Sure everyone assumes that a “world class” aquarium will be built, but just what does world class mean? For example, would taxpayers approve of spending taxpayer dollars on solid gold faucets in the restrooms of this facility? Not that the developer would do that, but it emphasizes the point that once the tax credit is granted, there is no public oversight over what the tax incentive is buying.
Take for example the public chagrin when it was reported that $16 million in “high tech” investment tax credits was being granted for the making a “surfer girl” movie. The same can be said of the alternate energy tax credit for which there is no oversight as to what the true costs of such devices are, yet they are granted a 35% tax credit or a specified dollar limit. With the tax credit approach, who is to say that the “world class” aquarium will meet what the public expected?
Tax credits are generally utilized to alleviate some added burden of taxes that someone incurs as a result of their circumstances. In the case of the Ko’Olina proposal, it is difficult to figure out what added burden is being imposed by the state tax system and therefore the validity of the tax credit. In fact, that is another aspect of the proposal that is not highlighted in all the debate.
Under the proposal, the taxpayer can use the tax credit to offset any and all taxes due under state laws. So the amount of the credit can be used to offset not only income taxes due, but the credit can be used to offset the general excise tax liability, the TAT or room tax liability as well as the public service company tax and so on. The question is, does the taxpayer still pass on the cost of these taxes to their customers and then take the credit as an offset against these taxes or does the taxpayer just not charge the tax to the customers? In the case of a regulated utility whose rates are set by the Public Utilities Commission to include all costs including that of taxes, does the commission have to lower rates because the taxpayer possibly may have the offset of the credit?
Obviously the proponents of the Ko’Olina proposal never walked through the details of just how this credit was going to work, but instead relied solely on the hype of the proposal. And indeed, part of the hype is that it will help to stimulate the economy and create jobs for the people of the Leeward Coast. One still has to ask the question why not appropriate the funds or borrow the money? It will still accomplish the same goal, but what is more important is that taxpayers will be able to hold lawmakers accountable for the expenditure of those funds.
Finally, one has to question the precedent the tax credit proposal sets. If lawmakers approve the credit because it will create jobs, then why not do something for the Hamakua Coast of the Big Island or for Island of Molokai where jobs are in short supply? Nope, good tax policy seems to have been left on the cutting room floor in favor of partisan politics in the gutter.
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