COMMENTARY
Tech tax credits a wise investment
By David G. Watumull
Hawai'i's high-tech startups represent the cutting edge of scientific research. Many of our companies are developing blockbuster products that could benefit the entire world. These range from a vaccine that would stamp out West Nile Virus to developing an algae that could be turned into jet fuel. Our own company, Cardax Pharmaceuticals, is creating treatments for inflammation which is the underlying cause of most chronic disease, including strokes, liver disease, macular degeneration, heart and prostate disease, and even many cancers.
Cardax as well as other startups are also creating jobs — employment that will allow our kids to return home from the Mainland. These are jobs that can pay for a home in Hawai'i. The average local salary in the tech industry was $67,000 per year — more than any other business sector in our state.
None of this would be possible without tax credits from Act 221, incentives that fuel investment in these new cutting-edge technologies. Critics of these high-tech tax incentives look at the budget deficit and argue that we cannot afford these credits. That would be very short sighted.
There are ways to amend Act 221 that will ease the deficit while still permitting the tax incentives to grow our tech industry. In the current economic climate, it's all too easy to get all worked up around these issues. Indeed, a bill has passed out of the House Finance Committee that would essentially gut Act 221. As my father, whose formative years were spent at Lincoln Elementary, used to say when people get wound up, "cool head main t'ing."
So let's take a step back and think long term.
We should be seeking ways to grow the economy, to grow our tax base. We cannot cut our way to success.
Act 221 helps our state by creating good-paying jobs and by diversifying our economy. Mainland capital is flowing to Hawai'i, Hawa'ii capital is staying home. Market forces, not government bureaucrats, decide which companies get capital.
Let's look at some very important numbers about 221:
What about the cost? Less than $450 million in tax credits have been claimed over this same period of time according to the Department of Taxation. To be fair, in assessing its impact, one should also subtract from this cost all the payroll taxes, income tax, and general excise taxes paid by these companies. The upshot: at least 3:1 leverage. That means for every dollar invested more than three dollars are generated and spent, right here in Hawai'i.
At a time when we are also seriously considering a $1.8 billion bond-financed construction program at a cost of more than $3 billion that offers no leverage, we should not cripple one of the most efficient stimulus programs the state has, Act 221.
This is also the wrong time to reverse the brain gain these new economy companies are stimulating. I'm talking about kama'aina who graduated from our public and private high schools and are coming back from the Mainland to take jobs generated by startups.
In these tough economic times, when many in the service industry are getting laid off, these technology workers are paying their bills, making a decent living and generating the taxes that pay the wages for our hardworking teachers, police officers, firefighters and other valued government workers.
Keep in mind, the companies that currently benefit from tax credits are not going to need them forever. Eventually they will remove their training wheels. These incentives are just a way to get them going.
But, we need to be patient and we need to be creative. We in the tech industry understand the budget issues — we get it. We have ways to keep 221 functioning and address the current budget issues. Let's work together to craft these solutions.
It took decades to build up San Diego and Silicon Valley. It will take 10 to 20 years to ramp up in Hawai'i a substantial technology industry and the capital it needs to grow.
So don't let anybody tell you that our high-tech tax credits don't work. They are succeeding remarkably. We need this law to grow a new future for everyone in Hawai'i.
David G. Watumull is the chief executive officer of Cardax Pharmaceuticals, an 'Aiea-based biotech startup focused on therapies for cardiovascular disease, hepatitis, macular degeneration, and many cancers. He wrote this commentary for The Advertiser.
