Posted on: Monday, January 20, 2003

EDITORIAL
Tax incentives must make sense to investor

There's lots of discussion this year at the Legislature of new tax incentives, mainly intended for the creation of jobs.

The state Tax Review Commission recently criticized the state's overall tax credit policy, saying too often they cost more than they bring in.

We've seen controversy erupt over Act 221, the so-called "high-tech" investment rebate, and a tax credit bill designed to help developers at the Ko Olina resort build a tourist-attraction aquarium and ocean research center.

Act 221, by all accounts one of the most generous in the nation, is intended to stimulate high-tech business here. But critics say it may have been abused by businesses that are already here or have no intention of remaining. Lawmakers will want to study two new movie productions that have just qualified for this credit.

The Ko Olina credit was vetoed last year by then-Gov. Ben Cayetano, who argued it was too specifically tailored to one project.

The Tax Review Commission's recent report advocates thorough cost-benefit studies before credits are approved and far more rigorous oversight once the credits are in place.

It's in this spirit that we hope lawmakers will carefully study a proposal to stimulate job growth in "knowledge-based" industries with a tax credit.

It would be available to businesses that increase the number of jobs in their company by 10 percent, with the caveat that the jobs must pay at least $39,000 annually. The initial proposal calls for a tax credit of 3 percent of a new salary, up to $1,500.

On the face of it, we're wondering what kind of business would be willing to put out $50,000 for a new employee simply to recover a $1,500 tax credit. It seems a marginal incentive at best, although perhaps its symbolism as part of a larger package of existing and proposed job creation incentives might help generate favorable national attention.