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Obvious Best Intent Falls Short On Details

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By Lowell L. Kalapa

(Released on 03/11/07)

While lawmakers are swamped with all sorts of issues, one would think that those who forward ideas to them would do all the homework before tossing the idea into a legislative bill. There are certainly a lot of examples of ideas where no homework was done.

Take for example a bill that is supposed to contribute to the workforce development arena forwarded initially by the administration. The measure would encourage workers to contribute to “lifelong learning accounts” that, as the labor director noted, are “similar to 401(k) accounts.” In return, the measure would offer the worker who makes contributions to such accounts a tax credit of up to $1,000 a year supposedly on a dollar-for-dollar basis of the contribution.

The measure also would encourage employers to match their employees’ contributions to such accounts – supposedly on a dollar-for-dollar match – for which the employer could claim a tax credit of up to $500 per employee. What a novel idea having employers contribute to a savings account that could be used to further the education and job skills of the employee so the employee could get a better job!

Wait a minute here, why would an employer want to contribute to a savings account that could improve the employee’s skills that could possibly enable that employee to go out and look for a better job with another employer? Well, perhaps the drafters of the proposal thought that the skills gained would make the employee eligible for a better job with the employer, but there is no guarantee that the employee will work for the same employer once he or she has gained new skills. So it is something like asking the employer to pay for the training another employer will have the advantage of when that applicant walks in the door.

And while these savings accounts are proclaimed to be somewhat akin to 401(k) plans, there are none of the penalties associated with the retirement accounts that will insure these funds will be used for the further education of these employees. In fact, no where in the tax credit section does it say that these funds must be used to further the education of the employee. Unlike 401(k) provisions which require that withdrawals before the qualifying retirement age can only be used for designated purposes and must be repaid, these lifelong learning credits have no penalties for withdrawals if used for other purposes.

While the state department of labor is tasked with promoting these accounts and encouraging workers to save, especially lower-income and lower-skilled health care, hospitality, and technology industry workers, there is no one who will be monitoring the type of education being purchased with the funds from these accounts, i.e., the quality assurance of the education being secured. Will classes in basket weaving be a qualified education pathway or for that matter square dancing?

The fact that tax dollars are being handed out in the form of tax credits should concern all taxpayers as to the effective and efficient use of these tax dollars to accomplish the stated goals. Obviously well-intended, this is another example of how little thought went into the proposal.

Another well-intended proposal that seems to miss the mark is a proposal to extend an income tax deduction for the installation of an automatic fire sprinkler system in a residential or mixed-use condominium which was constructed before the fire code requiring such systems was enacted in 1975. The deduction would be extended to owner occupants not to exceed $7,000 in one draft of the bill.

Wait a minute, to owner occupants only? Well, that is what the bill says. And what about the landlord of a unit being rented out? Do you mean to say that renters don’t count as much as owner occupants? So landlords would get no tax benefit while owner occupants would. Regardless, the importance of installing a fire sprinkler system should outweigh the need for a tax break to encourage owners of those buildings to install a fire sprinkler system let alone rewarding owner occupants and punishing renters.

Both that proposal, and another that would offer a special deduction for donors of body organs for expenses associated with the donation, run counter to a well-established policy to maintain conformity with the federal Internal Revenue Code as neither deduction is available under the federal law. Thus, with deviations between the two laws, it becomes more difficult, if not more costly, for taxpayers, as well as administrators, to comply with the law and make sure taxpayers are adhering to the law when those differences occur.

Instead of having the convenience of comparing a person’s federal return to the state return by running the information for both returns through the computer, tax officials will have to manually verify that the deduction taken was appropriate. That’s more of your tax dollars at work.

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