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Yielding to Tax Base Erosion

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By Lowell L. Kalapa

As one can imagine, the number one goal of elected officials after being elected is to get reelected. As a result, they tend to shy away from tax increases but love to introduce proposals that look like they are doing taxpayers a favor.
In the past few years the legislative hopper has been “littered” with literally hundreds of tax proposals that would grant some kind of tax break, be it in the form of a tax credit or tax exemption, to taxpayers who undertake some sort of activity. There have been tax credits for taxpayers who take a CPR class while other ideas range from providing childcare facilities on the work site to having medical professionals setting up their practices in an economically depressed area.
And of course who can forget those big time economic stimulus tax credits for motion picture companies shooting in Hawaii or for building a race car track. Then there are those heart-tugging issues like tax credits for organ donors, or tax credits for employers who give their employees time off from work if they are victims of domestic violence. How can a good elected official who wants to get reelected rail against tax breaks for those victims?
Then there are the tax exemptions, some of which became law, like the exemption of the fist $1,700 received by National Guard or armed forces reservists. There are some that didn’t become law such as the deduction for driver education expenses.
What each of these zany ideas has in common is that they contribute to erode the tax base and therefore the amount of taxes collected. And you might ask what’s wrong with getting tax breaks like these? These tax breaks are not accompanied by commensurate spending reductions, and someone else will have to pick up the tab for the lost revenues. In other words, if spending can’t be cut the same amount of revenues, if not more, will have to be raised.
Granting tax breaks which have absolutely no relationship to the tax burden of the benefiting taxpayer means that everyone who is not qualified for the tax credit will have to pick up the slack in paying for government. By granting these tax breaks for a chosen few, the masses of taxpayers who don’t qualify will continue to labor under the heavy burden of taxes for which Hawaii is known.
Fewer exemptions leaving the tax base insures that tax rates can be kept low or better yet be lowered even more. This way all taxpayers benefit rather than a select few. Unfortunately, this does not appear to be the direction in which lawmakers will be asked to go. Already there are calls for tax credits for employers who help their employees rehabilitate from substance abuse and recommendations that certain types of gross income from conventions be exempt from the general excise tax.
While all these may be worthy causes or appear to stimulate the economy, the bottom line is that unless the tax climate is improved for all taxpayers, Hawaii’s economic outlook will continue to face difficult times. We can already see it as the “model” businesses that everyone raved about years ago pull up stakes and leave the state because they can no longer cope with the hurdles and challenges of doing business in Hawaii. With those businesses go jobs that the people of Hawaii need.
More importantly, without a vibrant economy that can produce quality jobs Hawaii will never be a place where the arts and culture can flourish. As long as the tax and regulatory atmosphere remains draconian, Hawaii will never have the economic base to provide the extras that a strong economy can afford. This also means not having the resources to build a quality education system and not having housing for everyone who wants a house.
Hopefully lawmakers will have the political will to avoid pandering to special interests who want tax breaks for their little slice of the tax base and find the courage to enact broad-based tax relief for all taxpayers. Building a larger and larger government on the back of an already over burdened taxpayer can only lead to the disastrous result of businesses and families fleeing the state.
In the end, the state will lose its most valuable resource, its people.

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