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Zigzag Course for Tax Legislation

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By Lowell L. Kalapa
(Released on 2/14/10)

There is no doubt that lawmakers have their eyes trained on potential revenue enhancements – read tax increases – this year as they scrape the bottom of the barrel and shake out their pockets looking for the tiniest bit of over looked change.

However, at the same time some lawmakers don’t seem to comprehend the gravity of the state’s financial situation as they continue to introduce measures that will result in revenue losses. From tax credits for alternate energy facilities to exemptions from the general excise tax for the sale of electric vehicles and electric vehicle charging systems, lawmakers seem to be oblivious to the revenue losses the proposals represent.

Lawmakers seem to be oblivious that on one hand they are scrounging for the last dime and could possibly raise taxes before the end of the session, while still proposing to hand out those precious tax dollars as incentives. For example, concerned about the rising cost of medical malpractice insurance for emergency room physicians, lawmakers are proposing granting those physicians a tax credit equal to 5% of their medical malpractice premiums. This credit would be in addition to a long list of other tax credits adopted in recent years to encourage certain taxpayers to undertake this or that activity.

On the other side, some lawmakers want to stop the hemorrhaging of tax dollars and have introduced measures that will dictate that taxpayers with both refundable and nonrefundable tax credits apply the refundable tax credits first to their tax liability and then the nonrefundable credits, if there is any remaining tax liability. Thus, using the refundable tax credits first, the state will have to pay out less in refundable tax credits that may be in excess of the taxpayer=s liability.

The oddity is that it is the very lawmakers who proposed and approved of these tax credits that are now proposing that hurdles be thrown in front of taxpayers trying to claim these credits. One has to wonder where these lawmakers were when it was pointed out that such credits represent a big black hole in the state treasury.

And what about all of the advocates for these credits? Where are they now that there are furlough Fridays in the schools and programs for the poor are being wiped out of the budget? Perhaps lawmakers may want to consider asking the beneficiaries to give back the money they received through these tax credits now that they are considering raising taxes on everyone else.

Given the shortfall in tax revenues, one would think that lawmakers realize that there are an awful lot of people out of work or who are working less hours and that employers are struggling to keep their doors open. But it would be hard to believe given a legislative proposal to set up a state insurance fund to provide benefits to employees who take family leave. The reasoning for this proposal is that while federal law requires larger employers to provide employees job-protected leave due to a serious health problem in the employee’s family, such as a sick family member or the birth of a child, that leave is unpaid. State law requires employers to provide up to four weeks of such leave during the calendar year that may be a combination of paid or unpaid leave.

The proposal in front of lawmakers would require every employer and employee to contribute up to one cent per hour into the fund or not more than $2,000 per year for each employee, whichever is less. While a penny an hour doesn’t sound like much, given the track record of the legislature, that penny represents nothing more than a foot in the door. Once the program is established, lawmakers will probably find an excuse to hike the rate to a level where it becomes “real” money. Never mind that this proposal creates another state special fund that could be the target of a legislative raid in the future when another revenue shortfall occurs.

Then there is the proposal to impose an additional general excise tax on the sale of fee simple real property by persons or entities that sell such real property on a regular basis. The proceeds would be earmarked for infrastructure development such as roads or sewer and water lines. While the tax would be a temporary imposition through fiscal year 2015, it would, nonetheless, have a substantial impact on the cost of future development. So while lawmakers crusade for affordable housing out of one side of their mouths, they propose increasing the cost of that housing.

Watching the legislature this year is like watching a huge luxury cruise ship zigzagging across the ocean blue.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.


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