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Value Of Better Business Climate Eludes Policy Makers

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By Lowell L. Kalapa
(Released on 10/28/07)

Under legislation approved by the regular session of the legislature, the tax department is mandated to aggregate and publish all the data collected on the claims made for the high-technology tax credits since their inception in 2001.

These are the more familiar “Act 221” tax credits that have been handed out for investments in qualified high-technology businesses or high-technology research and infrastructure. While the expected report will produce more information than taxpayers, and especially policy makers, have had on the credit, there probably won’t be enough information to determine the cost-benefit of the tax credits. This is because very little thought was given to collecting information to help determine if any, or all, of the claims made by the proponents of the credits ever materialized.

For example, one of the claims made is that the high technology industry would bring high paying jobs to Hawaii. Because claimants of the credit were not asked to specify by income category how many jobs fall into what atmosphere of compensation, taxpayers will probably only get “average” salary or “median” salary which will be no indicator of how many “high paying” jobs were created. Nor will they know about the sustainability of those jobs. In other words, how many of those jobs are permanent or are they fleeting?

For example, in the digital media industry that qualified for the high technology tax credits there could have been four or five highly compensated actors or singers and then a whole bunch of clerical positions for which the compensation is minimal. Further, those jobs would probably disappear once the production was concluded. And while there may be other productions down the road, the question is what sort of long-term lasting effect will those industries have for the people of Hawaii if they come and go on the whim of a tax incentive?

What those tax breaks do create is apathy about the overall business and tax climate in Hawaii. Lawmakers believe that they are stimulating the economy and growing the economy when all they are doing is adopting a temporary fix that cannot be sustained without more and more handouts of tax incentives. On the other side, the special interests who can benefit from the tax incentives love them because there is no risk for their business venture.

Promoters of the tax incentives extol the virtues of the tax incentives as creating new industries, better paying jobs and more economic activity, citing that even the mom and pop okazu-ya shops benefit because they sell more plate lunches. However, what they seem to ignore is that once those tax incentives disappear or get used up, those very businesses will have to struggle with the same hurdles faced by other businesses, including the heavy burden of taxes, the high cost of land in Hawaii, the terrible toll that permitting and regulation exacts from businesses and the literal red tape of Hawaii’s labor laws.

The current hurdles faced by the Superferry highlight the difficulty that any new business encounters in setting up operations in Hawaii. But those laws were put in place by the very people who are now trying to circumvent them. It is not that public concern, be it about the environment or the shoreline management, or the emissions standards should be ignored, it is a matter of balance between those issues and concerns and the well being of our economic future.

Indeed, economic and financial survival is just as important as the environmental concerns or global warming or shoreline management. If we are lulled into complacency with tax incentive “soma,” then Hawaii’s economic future is doomed.

Lawmakers and taxpayers alike need to recognize that it is the overall business and tax climate that must be addressed and balanced with all of the other concerns of our community. Reducing the spending that perpetuates the heavy burden of taxes in Hawaii at both the state and county level should be a major target for lawmakers if they want to avoid another fiscal crisis like the one that plagued Hawaii during the 1990’s.

They cannot wait until that crisis recurs, but must act now while there are resources available to balance the financial ship of state. Lawmakers need to spurn the glitz of tax incentives and get down to business improving the tax and business climate in Hawaii.

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