By Lowell L. Kalapa
While it may not always be popular to take the unconventional view, sometimes it is necessary to point out that the emperor has no clothes.
In this case, it is the fact that lawmakers have decided to use the tax system to do the work that legislators should be doing. In recent years, lawmakers have come up with two mechanisms that employ the tax system to do their work.
The more notorious of the two is the use of tax credits to incentivize certain types of behavior such as encouraging the growth of the high technology industry or encouraging farmers to build water storage systems. Lawmakers seem to believe that if they hold out a large enough carrot, taxpayers will take the initiative and do what lawmakers believe needs to be done. Unfortunately, as taxpayers have witnessed, those tax credits can be abused and used in ways never imagined by lawmakers.
And of course, lawmakers never shoulder the responsibility for having created the monster. The abuse or misuse of credits has been the bane of lawmakers in that they have wreaked havoc on anticipated tax collections to the point where there aren’t enough of the tax dollars lawmakers love to spend. When they receive reports of how much the credits are costing the state treasury, they appear to be like deer trapped in the oncoming headlights of a car, in shock, denial, and disbelief.
What can legislators expect when they have no way of controlling how much in credits will be claimed and just what will be able to qualify for the credits? Lawmakers seem to rationalize the loss of revenue as proof that the credits are accomplishing their designated purposes such as producing more employment and more economic activity. But how can that be so if tax collections struggle to report a positive growth?
While it looks like the current fiscal year will end with a substantial growth rate of 5.2% or more, it should be noted that the tax department is also reporting a decrease in the number of applications for comfort letters involving the high technology credits. It would seem that absent the claims of some of these credits, tax collections should be reflecting the rebounding economy.
There is now a proposal awaiting the governor’s approval that would extend the high technology credits for another five years. While advocates of the proposal say it would tighten up the requirements of the credits, the credits are still in a form that will be a drain on the state treasury. Instead of extending a poorly drafted law, it might be more prudent to rewrite the incentive altogether.
The other device that lawmakers have come to think of as a way to solve the state’s problems is the “check-off.” This is the little box that taxpayers have begun to discover on their income tax returns that allows them to designate a portion of their tax refund for specific purposes. While the first check-off was placed on the Hawaii return nearly 30 years ago to provide public financing of elections, it remained the only check-off until recently. Prompted by a similar check-off on the federal return, it appeared to mimic the federal tax return.
However, in recent years as money became scarce, lawmakers found the check-off a convenient means of saying that they were providing funds for highly visible and emotional issues such as school repairs and libraries. They could point to the check-off and tell those constituencies interested in these programs that they could get money if they just encourage taxpayers to make a donation of their refund. Never mind the fact that lawmakers couldn’t set these programs up higher on the priority list for tax dollars already doled out by taxpayers.
What the check-off does for lawmakers is that it allows them to absolve themselves for not providing sufficient funds for these purposes and allows them to abdicate the responsibility of setting priorities for state tax dollars. And such will be the case of the check-off proposal pending the governor’s signature.
This year’s check-off proposal would provide dollars for child abuse and neglect. How can one oppose something as emotional as apple pie and the American flag? Never mind that this year lawmakers tried to raid the very fund to which the dollars from the check-off would be deposited.
Talk about fudging their commitment to child abuse and neglect! This is another proposal that deserves the governor’s rejection.