State Tax Revenues Lower Than Expected; Council Lowers Expected Growth Rate

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Council on Revenues March 2012

BY JIM DOOLEY – A 2011 state law meant to generate as much as $220 million in new tax revenues has fallen far short of target, causing the state Council on Revenues today to forecast a 2.2% drop in next year’s total tax take.

Council on Revenues March 2012

The Council’s predictions are used by legislators and administrators to set the state budget.

The Council in March had predicted a 7.5 per cent rise in 2013’s tax revenues but today voted to pare that figure to 5.3 per cent.

The action was taken after Tax Department official Donald Rousslang said expected revenues from Act 105, a 2011 law that temporarily suspended excise tax exemptions for a variety of Hawaii businesses, is expected to generate $70 million in new revenues.

When the law was enacted, officials estimated it would generate as much as $220 million in new money for the state. That number was later pared to $156 million and now has been more than halved again.

Rousslang also said the state is seeing a large drop in revenues because of tax credits granted for renewable energy installations.

He said hard numbers on renewable energy tax credit claims are still being assembled and will be presented at the Council’s next meeting by the Department of Business Economic Development and Tourism.

Lowell Kalapa, head of the Tax Foundation of Hawaii, said after the meeting that Tax Department officials are wrestling with nuances of the energy tax credit program.

Taxpayers who install multiple photovoltaic energy systems in one project can potentially qualify for multiple tax credits, he said.

The Council did hear continuing good economic reports on the strength of Hawaii’s visitor industry.

But Council member Marilyn  Niwao, a Maui accountant, warned that positive economic effects of increased state construction spending, approved by Gov. Neil Abercrombie and the Legislature this year, won’t be felt for extended periods of time because of long project lead times.

Members of the Council on Revenue are Richard F. Kahle Jr., chair; Jack P. Suyderhoud PhD, vice chair; and Avery K. Aoki, Carl S. Bonham PhD, Christopher Grandy PhD., Ronald Migita, Marilyn Niwao, J.D. CPA.

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  1. It’s not surprising that Act 105, which effectively increased taxes by removing some general excise tax exemptions, will “generate” less than 1/3 of the revenue initially forecast. That is invariably the case, but our elected spenders just don’t seem to get it. The Council on Revenues is fortunate to have excellent people serving, but their expectations are always incrementally adjusted up or down along the way, so I’m not sure how useful it really is. At the end of the year, the estimate may appear to be fairly accurate, but the true measure should be how closely the final numbers match up to the original projections.

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