Legislative ax hovers over tax exemptions


POSTED: Saturday, March 21, 2009

For almost every tax the state levies, it has a set of exemptions for certain activities. Other activities such as buying a child car seat or building low-cost housing are rewarded with a tax credit.

What would happen if the state dropped all those credits and exemptions?

The state could collect an additional $404 million in 2012, $1 billion more in 2013 and $1.4 billion in 2014, according to testimony presented yesterday by the state Tax Department.

At issue is House Bill 611, which calls for dropping some tax credits and exploring what it would mean to the state treasury if almost all exemptions and credits were canceled.

The Senate's Economic Development and Technology Committee is expected to amend the bill and approve it next week, but the critics are already increasing.

One portion of the bill would drop the exemption of general excise taxes on alimony, which was criticized by family practice attorney Dyan Medeiros.

Under state and federal law, Medeiros noted, alimony payments are taxed as income. By including it as also a general excise tax, recipients would be taxed twice.

“;This bill hurts Hawaii's families,”; Medeiros said.

But the Tax Foundation of Hawaii blasted the use of tax credits as a way to encourage behavior, saying that it was unfair to give tax money to one group instead of all groups.

“;At the end of the day, while the beneficiaries laugh all the way to the bank with their profits, the taxpayer is left empty-handed,”; said Lowell Kalapa, tax foundation executive director.

Kalapa said that instead of giving one group a tax credit or exemption, “;concurrent efforts must be made to improve Hawaii's business climate to enhance the economic prospects for all businesses.”;

State officials warned against a wholesale dropping of state tax credits.

The Department of Business, Economic Development and Tourism said dropping the tax credits for film production would hurt an industry that has brought $322 million in direct expenditures to Hawaii since 2006.