State can rein in tax credits law without gutting it
When the debate began this year over whether the state can afford tax incentives to lure technology investment, it was often framed as an either-or proposition. The budgetary crisis sparked a showdown between a fledgling technology sector and the struggling social safety net for the needy, both clamoring for limited funds.
Fortunately, lawmakers in the House have staked out a middle ground in the latest version of House Bill 1451, one that attempts to limit but not eliminate the use of taxpayer funds for business through the Acts 221 credits. Just how much money will be allotted for this incentive is left for lawmakers to settle once the Council on Revenues updates how much money the state will have to spend.
It was, on several levels, a breakthrough, one achieved after a Tuesday hearing culminated in a round-table discussion between the industry leaders and the Committee on Economic Revitalization, Business and Military Affairs. The panel passed out the bill, which would:
This last point is important because it will help the state crack down on credit recipients who are creating companies to claim the credit but are not furthering the state's goal of luring new technology innovators here.
It's a sensible start toward a solution. The most critical element is the insertion of caps to limit how much individual companies could claim ($10 million) and how much tax overall can be diverted to the credit program (amount left blank in House Draft 1). This will allow lawmakers to strike a balance between the state's competing missions of encouraging business and providing social services.
The tax base funds programs that help cover costs of shelter and medical care for those who otherwise can't afford it, as well as education to ready the next generation to be productive citizens.
But just as the state leaders must prepare people for what lies ahead, they must think beyond the current fiscal woes and expand the tax base that supports its services. Tourism alone remains the bedrock economic driver, but Hawai'i needs to grow secondary sectors to supplement the visitor industry in bad times such as these.
It's time to quit framing this discussion in either-or terms. The job of state government is to do both: maintain essential social services while staying the course on economic development to ensure a brighter future.
