EDITORIAL
Time for thorough review of tax policies
In an ideal world, perhaps, taxes would be used for one purpose only: to generate income for the general operation of government.
But we are long past that ideal state. Both locally and nationally, taxes are used as instruments of social policy.
In Hawai'i, the focus recently has been on tax incentives designed to get our economy humming again. There has been considerable controversy, for instance, about Act 221, the so-called "high-tech" investment rebate.
By all accounts this law is one of the most generous in the nation. But because it is broadly worded and interpreted, some critics say it is open for abuse.
While it was designed to stimulate new high-tech business that will stay in the Islands, critics say the law is being used by businesses already here or by ventures that never intended to remain.
Similar controversy erupted over another tax credit bill designed to help developers at the Ko Olina resort build a tourist-attraction aquarium and ocean research center. That measure was vetoed by then-Gov. Ben Cayetano, who argued it was tailored too specifically to one project.
Now, the state Tax Review Commission, a citizen advisory panel on tax policy, criticized the state's overall tax credit policy. This report should be must reading for lawmakers as they take up another round of tax credit legislation this session.
The report does not argue that tax credits should be eliminated. Rather, it says that there should be thorough cost-benefit studies before credits are approved and far more rigorous oversight once the credits are in place.
Mandating a cost-benefit study before a credit is approved would slow the process somewhat. But it would be worth it if it heads off credits that cost the state more than they are worth.
Another sound idea from the review commission is for a "sunset" provision in each credit. This would require the Legislature to review and renew the credit after a set number of years rather than allowing them to linger indefinitely.
Tax credits can be a good policy-making tool. But as the review commission points out, unless they are wisely enacted and monitored, they can hurt more than they help.
