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When Some Get Breaks Others Pay

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By Lowell L. Kalapa
(Released on 11/11/07)

As required, the department of taxation recently released its compilation of data gleaned from returns filed by taxpayers claiming the high technology tax credits and what we learned isn’t any surprise – that these tax credits are taking a bite out of tax revenues.

However, as the media reports pointed out, the data reported is still insufficient to do a true cost benefit analysis as the information requested before this past session was relatively vague. However, what is known is the amount of tax credits that have been claimed through calendar year 2005. What is disturbing is that the amount claimed as high technology tax credits reached nearly $70 million in 2005 with a trend line that indicated even more will be claimed in the future. And as the media points out, the state and, we, as taxpayers, will be on the hook for more revenue losses at least to the year 2015 since the credits can be claimed up to five years after the currently scheduled sunset date for the credits.

Although advocates of the credits argue that they are helping to attract the capital necessary to start up these businesses, they seem to forget that the foregone revenues that these credits represent means that those of us who can’t claim the credits end up paying more taxes to make up the shortfall. It would be another story if state government cut back its spending by an equal amount, but as we have seen, elected officials don’t like cutting back on their addiction to spending tax dollars.

The result is that the tax burden must remain high on all of who can’t claim the goodies to offset our tax burden. How ironic that in the debate over the Superferry that claims were made that it was just one more example of why it is difficult to do business in Hawaii. Never mind the fact that the protests and lawsuits are in addition to all the taxes, fees and regulations with which businesses in Hawaii must comply.

Little do advocates of the tax credits admit that the very steep schedule on income tax rates and brackets affects their employees, imposing the maximum state income tax rate on those who don’t even make the six-figure salaries that they say the high tech industry can pay. Nor are they willing to acknowledge that those taxes and regulations add to the cost of site, energy, transportation, and communication for all businesses in Hawaii as well as for the cost of living with which their, and all, employees must cope.

What is surprising is that taxpayers don’t make the connection with the fact that while these favored businesses laugh all the way to the bank to the tune of nearly $70 million in 2005, the legislature approved only meager tax reductions for all other taxpayers and largely for those at the very bottom of the income scale. It isn’t that the poor don’t need tax relief, but the vast majority of struggling middle-income families received very little tax relief because lawmakers just couldn’t “afford” the revenue loss.

What is also ironic is those lawmakers who are more than willing to grant these tax credits are the very ones who decry “corporate welfare” at the national level. And what, they don’t think these targeted business tax credits aren’t “corporate welfare?” On the other side of the aisle, those in the private sector who vow that they are working to improve the business climate while defending these targeted business tax credits are nothing but hypocrites because they are insuring that all other taxpayers suffer the heavy burden of taxes and regulations. And what do they think will happen when and if these tax credits expire? Will those high tech businesses be able to survive in Hawaii’s poor business climate?

Thus, what the credits represent is a back handed recognition that without such goodies for investors, Hawaii is a lousy place to do business. What those credits say is that without a government subsidy, it is almost impossible to start a business in Hawaii let alone to survive beyond the initial investment. And as for those so favored with the credits who claim that they are creating new jobs and stimulating new businesses, all they have to do is to look around them and see shopkeepers closing their doors and going out of business.

But because the economy has been so good, no one is noticing that the next round of stagnation is already beginning to show. If lawmakers do nothing to correct this drain on the state treasury, they will find themselves once more in an economic mire with no tools or resources to turn the economy around. And by that time most of Hawaii’s workforce will have been forced to leave the state as they did in the 1990’s.

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