Although there were numerous proposals to either adopt new tax incentives or credits during the 2012 legislative session, none passed. Similarly, there were a number of attempts to either sweeten or extend existing tax credits. Those proposals also failed to
Although there were numerous proposals to either adopt new tax incentives or credits during the 2012 legislative session, none passed. Similarly, there were a number of attempts to either sweeten or extend existing tax credits. Those proposals also failed to see the light of day.
The tax credit garnering the most attention this past session was the proposal to enhance and extend the film tax credits after the splash of the movie, “The Descendants.” Although the credit has been scaled back from the original digital media and the high-technology tax credit with a cap of $8 million per production, it is, nonetheless, a hefty hit against state resources. Perhaps this was one of the reasons why state lawmakers were reluctant to pass more generous provisions.
Those who will be employed by these productions and the accountants and lawyers who cut the deals may still advocate for the credit, but the general taxpaying public is beginning to realize these giveaways must be paid for since state lawmakers do not compensate for the loss of tax revenues by reducing other programs. For a while, lawmakers saw these tax credits as a way to stimulate the economy, create jobs and diversify the economic base. They figured if credits were claimed, it was an indication the incentive worked and accomplished the intended goals.
Lawmakers did not realize the credits represented tax collections foregone. In other words, these credits proved to be nothing more than an expenditure of state tax dollars on the particular industry or activity targeted by the incentive. What was even more inane was information was only collected on the impact of these activities after critics questioned the number of jobs created, payroll and expenditures, and the long-term effect those activities had on the state’s economy.
While investors and other claimants of the credits argued sharing such information would send a chill over the investment community, lawmakers realized without proof that the tax incentives created new industries and jobs, support for the continuance of those incentives melted.
The combination of the recession and historic budget shortfalls helped to drive home the fact the barrel was not bottomless. Only when taxpayers — both businesses and families — struggled to make ends meet did it seem lawmakers realized tax incentives were competing for the very resources they needed to fund programs and services the state government is asked to provide.
When reductions in education and welfare budgets had to be made, lawmakers found they could not make similar reductions in generous tax incentives. Those who benefited from the credits pointed out the Legislature had adopted those incentives and taxpayers had undertaken the desired activity based on those incentive provisions. In other words, legislators could not change the rules of the game. While health benefits for the poor and after-school child care programs were slashed, investors in high-technology ventures and film producers continued to feed at the trough. And because many of these credits are given out in increments over a period of time or are nonrefundable and must be carried forward until the amount of the credit is used up, the fiscal hangover will be with lawmakers for years to come. As a result, it will be a long time before the state’s fiscal picture will return to normal, even if the economy recovers.
Will lawmakers ever consider providing such tax incentives in the future? Sure. They are always good for a snazzy “bling” they can trot in front of their constituents.If legislative money managers have anything to say about adopting such wild schemes, it is doubtful lawmakers will be able to go down that path in the near future. That’s not to say some eager lawmakers in the future won’t be bedazzled by the prospect of providing some sort of tax incentive for the next sexy thing, but for those lawmakers who have struggled over the past four years, they will remember they raised taxes and cut vital programs, just so they could make the books balance.
They learned those tax credits have a way of getting out of hand and there is little they can do to close the barn door.
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.
