You would think that lawmakers would have learned by now that targeted tax credits to entice certain types of investments or provide solutions to knotty problems are inefficient and place a drain on state tax revenues.

But now, when one fingers through the spate of bills which have already been thrown into the hopper this year, there they are — tax credits for every imaginable problem under the sun. For example, the lack of health coverage for part-time workers weighs heavily on the minds of some lawmakers so bills have been thrown in the hopper that would provide tax credits to alleviate the financial burden on small business employers. Note well that the proposal would grant the tax credit only to small businesses, those with either 50 or 100 employees or less.

This prompts one to ask, why only small businesses? Does that follow to reason that employers of a larger workforce are somehow more capable of bearing the burden of costly health care? One of the fallouts of the higher cost of health care is that employers have tended to hire employees on a “part-time” basis to work only 19 hours a week. Under the prepaid health care law, the employer is not required to extend health benefits to these part-time employees. So why wouldn’t a large employer do just that if the tax credit is not made to employers with more than 50 or 100 employees? But somehow lawmakers think that they can garner the support of small businesses since there are more small businesses than larger employers in Hawaii.

Throwing in a tax credit to mitigate the cost of prepaid health care is not the answer, it is merely a subsidy paid for by all taxpayers. Ah, but then lawmakers don’t have to think or research the problem, the answer is the tax credit or subsidy. Unfortunately, the tax credit will have to grow larger as the years pass if nothing is done to address the growing cost of health care premiums. As the tax credit grows larger, the drain on tax revenues will also grow larger and soon, because there won’t be enough tax revenues in the till, lawmakers may be squeezed to the point that they just may raise tax rates.

Using tax credits for purposes other than alleviating a burden of taxes that a taxpayer is not able to carry because of financial or economic reasons is nothing more than a subsidy provided by government and all other taxpayers. Where there is no cap on the aggregate amount of tax credits that can be claimed, those tax credits become nothing more than a big black hole into which tax revenues disappear.

If lawmakers want to solve a problem or encourage individuals and businesses to undertake a certain activity, then they should appropriate state resources, money, to encourage that behavior or activity. Appropriating the funds ensures that everyone knows how much legislators are spending on that program or activity. For example, a tax credit that seems to be near and dear to the politically correct lawmaker is the schedule of credits designed to encourage the use of alternate energy. The credit has been around for more than a quarter century and no one knows from year to year how many taxpayers will take advantage of the credit. As a result, no one knows how much of a hit the state general fund will take in any one year. Yet lawmakers are unwilling to let the tax credit go because it is a politically and environmentally correct thing to support.

What is wrong with the Legislature appropriating a specific amount of money and putting it into a trust fund out of which a reimbursement would be made to the qualifying purchaser or user of such a device Currently no proof is required other than the statement of the taxpayer that a qualified device has been purchased and installed and perhaps the threat of an audit. And what makes auditors at the tax department any more informed as to what is a qualifying device other than the promise of the salesperson?

If the amount in the fund is insufficient to reimburse all claimants, then lawmakers will at least have some idea of how much that incentive program will cost the next time around and they can then evaluate whether or not the program is working.

Having open-ended tax credits creates unnecessary exposure to uncontrollable swings in state tax collections and is absent of any kind of oversight and evaluation.

”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’ http://www.tfhawaii.org

”’HawaiiReporter.com reports the real news, and prints all editorials submitted, even if they do not represent the viewpoint of the editors, as long as they are written clearly. Send editorials to”’ mailto:Malia@HawaiiReporter.com

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