Tax cuts are better than tax credits

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By Keli‘i Akina

Gov. Josh Green’s big tax plan, the “Green Affordability Plan,” promises to put
$300 million back into taxpayers’ pockets, making it one of the biggest tax reductions in Hawaii history.

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But can the GAP live up to that promise?

For the past several years, the Grassroot Institute of Hawaii has urged Hawaii lawmakers to cut taxes. With a surplus of more than $10 billion expected over the next four years, Hawaii can afford it. Tax cuts would put money back in people’s wallets, reduce the cost of living and spur economic growth.

If the governor’s GAP plan were based around tax cuts, there wouldn’t be enough space on this page to contain all of my praise. But his plan is mostly about tax credits.

What’s wrong with tax credits?

Keli‘i Akina

Politically, they are a gold mine. They can target specific groups, they sound great on paper, and they feel like a bargain for taxpayers. Who doesn’t like to get money back? 

Gov. Green’s tax plan has tax credits galore — for food, low-income renters, child and dependent care, and teachers who buy supplies for their classrooms with their own money. It also would expand the earned income tax credit.

It all sounds wonderfully generous, but credits involve a lot of paperwork — something not everybody is good at — and just like that promise from your cousin to pay you back the $20 he owes you next month, $20 today won’t be the same as $20 up to a year from now when the next tax season rolls around. 

Probably the worst part about tax credits is that lawmakers often like to offset them with tax increases. It is one thing to create tax cuts and credits as part of a broader plan that includes smart, responsible budgeting. It is another to offer tax breaks with one hand while increasing taxes with the other. 

Fortunately, Gov. Green has not said anything about increasing taxes. Nevertheless, Hawaii taxpayers should remain alert to the possibility. 

The only actual tax cuts in the governor’s plan, if you could call them that, would involve increasing the state’s income tax deductions and exemptions. Together, these two changes would save Hawaii taxpayers about $162 million in 2024. That is a welcome move.

Also welcome is the governor’s proposal to peg the standard deduction, personal exemption and the state’s many income tax brackets to inflation, which means lower-income earners won’t get pushed into higher tax brackets. This would save taxpayers about about $26 million in 2024 and is a terrific idea.

So overall, there is a lot to like about Gov. Green’s GAP plan. Any tax plan that saves Hawaii residents money has to be a good thing — in fact, a great thing! 

In the future, however, efforts to reduce Hawaii’s tax burden would have more impact if they focused less on tax credits and more on straight up tax cuts — either by eliminating certain taxes or through lower tax rates.
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Keli‘i Akina is president and CEO of Grassroot Institute of Hawaii.

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