Tax Analysts Blog

Hawaii Tax Credit Craziness

Posted on Mar 19, 2014

According to some excellent reporting in the Honolulu Civil Beat, the Legislature is considering a slew of tax incentives to promote manufacturing in the state. Yes, there are those (particularly established manufacturers) who would like to promote something other than tourism, hosting of naval bases, and pineapple production. The main proposal (SB 3082) would provide tax credits for employee training and some equipment purchases. The goal is to turn Hawaii into 1960s Pittsburgh or Flint Mich., in their heyday. I have my doubts. Some places were made to attract tourists, host naval bases, and grow pineapples. And some places were meant to have industrial skylines.

Still, everyone seems to be in favor of using the tax laws to promote manufacturing in Hawaii. But not all of the proposals are manufacturing specific. In fact, once you start talking about tax breaks for the tiny manufacturing sector, everyone wants in. There is a proposal for a tax credit for renewable fuel production (SB 2197). I hope it’s solar because I heard the weather in Hawaii is nice. There is a proposal to provide a tax credit to employers that hire people with disabilities (HB 2478). That may be a nice thing to do, but it’s bad tax policy. There are proposals to give tax credits for new hotel construction (HB 2170) – it sounds dumb, but I bet hotel owners like it. There are also proposals to give credits to people who buy backup generators (HB 1870) and donate to charter schools (HB 2576), and for teachers who spend their own money on classroom supplies (SB 573). The latter credit is particularly interesting. We don’t appropriate enough money to pay the full costs of education. But we then make up for some of that by reimbursing teachers through the tax system. That’s wacky.

But wait—there’s more. Other proposed legislation (SB 2322) would provide tax credits to help tenants displaced when the state redevelops Honolulu Harbor. That project will no doubt involve taking property from some people and giving it to better-connected people for the good of society. There is also a proposal in HB 2371 to expand the low-income tax credit system. When it comes to tax breaks, everybody can be a winner.

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