Perhaps what has been most frustrating this session is the fact that few lawmakers truly understand what makes the economy grow and prosper.
And that misconception is not limited to those within state government, there are those who want to feed at the state trough who tout this or that tax break as the panacea for what ails the economy.
As noted in an earlier column, proposals to grant tax credits for all sorts of reasons abound this year as lawmakers try to prove to constituents that they are doing something to stimulate the economy. However, it is those very proposals which are an indicator that lawmakers don’t understand what makes the economy thrive. For example, there is a slew of tax credits including one forwarded as part of the House Majority package to grant tax credits if businesses create new jobs.
As introduced by the House Majority, the bill would have granted a tax credit equal to 3 percent of the qualified new employee’s salary, but not more than $1,500. Sounds simple and straight forward until one looks at the details. A qualified new employee has to be paid $39,000 or more per year and the number of new employees has to be more than 10 percent of the business — number of full-time employees at the time the credit is claimed.
Another bill would grant small entrepreneurs who have at least three employees but less than 25 employees a tax credit equal to 10 percent of net income tax liability if the entrepreneur adds an employee who is paid 30 percent above the average state wage.
Still another bill would offer employers a credit of $5,000 for every new employee hired provided the number of new employees equals 10 percent or more of the existing number of employees in that business. The bill also would have required the business to use two-thirds of the amount of the tax credit for training.
While lawmakers may be sincere in their intent, it is obvious that they do not understand that businesses just don’t create jobs to get a tax credit. Further, businesses do not bank on getting a tax break to afford one more employee.
Let’s get this straight folks, businesses don’t add jobs if they are losing money or they have no sales. It is only when a business can show some profit that they can even begin to entertain the thought that they might be able to add another person.
And pay them $39,000 or even 30 percent above the average state wage? Unless the company is bringing in some top level executive or some highly skilled technician, most new employees would feel fortunate if they could earn twice the minimum wage, which would be about $25,000 a year.
So the message to legislators is that they need to make sure that businesses in Hawaii can make a profit. Oh, such a dirty word, profit. But it is true, people don’t invest or open up companies to lose money. And unless that investor or business can make more than what it costs to make the product or service and run the business, no additional jobs will be created.
On the other side, there are businesses just waiting to feed at the public trough, pursuing this or that tax incentive as if it is the magic pill that is going to make their project or facility profitable.
The problem with that strategy is that they leave all other businesses and consumers behind holding the bag to pay for those tax incentives.
Giving out those tax benefits to only a select few ensures that the masses of taxpayers will continue to pay a heavy burden of taxes. What those hungry businesses forget is that many of their clients and customers are the ones holding the bag of higher taxes to the extent that they cannot afford the goods or services produced by the tax incentive favored business.
Finally, lawmakers don’t seem to understand that one more regulation, one more form to file, one more piece of paper to move costs businesses and employers money.
This was very evident the other day when an advocate for the proposed long-term care insurance tax noted that having the tax collected by employers wouldn’t add any more costs for the business. He suggested that the new long-term care premium could be just added into the withholding taxes collected by employers.
Nothing was said about how the business would account for the tax by the employee and what additional reporting would be necessary to ensure the tax was assigned to the proper employee. And what does an employer do when he is carrying an employee who may not have worked any hours in the pay period?
It sounds so simple, throw out a tax credit, require one more filing, that’s all right, there’s no cost to businesses.
”’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