By Lowell L. Kalapa
Advocates of targeted tax breaks for select industries wonder why they get a cynical response from some lawmakers when they try to persuade policy makers to grant them the subject tax break.
The problem with these targeted tax breaks is that there is no proof that they have achieved their promoted goals, be it the creation of new jobs or generating more economic activity. Tax credits and other tax incentives have become the norm for the legislature over the last decade and it appears that there is no stopping this trend. Just this past session lawmakers approved a ten-year tax credit to supposedly encourage the makers of television, films and other digital media presentations to do their thing in Hawaii.
What is unfortunate is that the advocates for the “film credit” promoted it as necessary to compete for productions that might go elsewhere but for the tax break. Even the administration was on board for the ride, supporting the credit proposal because they thought it would be cheaper than the high technology tax credit that some producers were claiming for earlier films like Blue Crush. What they, and lawmakers, did not realize is that, as drafted, the bill does not distinguish between productions to be attracted to Hawaii and businesses that are already doing business here. Both are eligible to claim the credit.
Thus, taxpayers who fit the mold of the tax credit for digital media production get a tax break while the taxpayer in the next office, who does not do digital media production, does not. That hardly seems fair because the taxpayer who does not qualify will continue to struggle with the heavy burden of taxes while his next-door neighbor may pay little or no taxes because of the tax credit.
The problem with all of these targeted tax credits is that there are no benchmarks by which lawmakers can evaluate whether or not the credits have achieved the promoted outcomes. Nor has the legislature required any kind of reporting of what benefits the credits created for the community and other taxpayers. Oh, the advocates make up all kinds of arguments about the number and kinds of jobs the favored activity will create or how the activity will benefit the community, but again, there is no factual reporting required of the favored taxpayer.
What is unfair is that the other taxpayers must continue to pay the heavy burden of taxes. That’s because lawmakers are also unwilling to reduce spending. In fact, it seems that tax relief is always on the bottom of the legislative agenda.
For example, this past session lawmakers were embarrassed into providing a larger standard deduction although the call for increasing the standard deduction dates back more than 20 years beginning with the first Tax Review Commission. They were embarrassed into doing so because it was almost certain the administration would have taken the issue on the campaign trail this fall.
Lawmakers’ reluctance to give tax relief can be found in the fact that not only did they construct a new standard off of the federal standard deduction for the tax year 2005, but the new standard deduction will not apply until January 1, 2007. It was not like they could have made it applicable to the current tax year, allowing workers to see immediate relief in their take home pay, but no, we all will have to wait until next year. Even the adjustment in the brackets that lawmakers approved this year will have to wait until the first of the year to kick in.
Although lawmakers purport to support economic development and cry out for economic diversification, this favoring of one particular industry insures that the economy will continue to stumble along as businesses struggle to survive in an environment fraught with draconian regulations and a tax burden that makes it difficult to turn a profit.
And don’t mention profit, for lawmakers seem to believe that making a profit means businesses are “ripping off” their constituents. What they don’t understand is that unless a business can turn a profit, there is little prospect that the business will be in business for long.
As voters go to the polls this election season, they should ask candidates just what will these lawmaker wannabes do about the heavy burden of taxes and regulations that are strangling the state’s economy? Voters shouldn’t just accept reports of how much bacon incumbents brought home to their district. After all, all that pork is paid with hard-earned taxpayer dollars.
Finally, voters should ask these candidates how they expect to make the tax system fairer so that the rest of us are not carrying the deadweight of a few favored taxpayers.