Pacific Perspective
Pacific Perspective
Tax credit bill
is an economic boon
to the stateWe didn't need Forbes magazine to tell us that Hawaii as a state is a hostile business environment for startups.
Consider the small captive market, lack of local capital and punitive tax code -- to name but a few problems that publication rather rudely harped on a few months ago.
One of the few bright spots in the last 18 months was the passing of the Hawaiian Hi-tech Tax Credit (Act 221), which encourages investment in approved technology startups by allowing investors to recover their investment over a minimum of five years via a state income tax credit.
This piece of legislation has been a real deal for the state -- a score or more startups have been funded, individuals and capital have poured into the state, and major venture capital funds are poised to bring their capital and employees to Hawaii.
The companies funded, in turn, have stayed in the state (one of the requirements of Act 221) and as they have grown have hired local employees, created high-paying jobs, and will continue to do so.
This is the virtuous engine of economic growth -- how things are supposed to work -- and it is little wonder a dozen or more other states have long had their own versions of our Act 221.
Incredibly, there is a grumbling subset who is opposed to Act 221. They have two main arguments: 1) They fear Act 221 could be abused; and 2) they say the Act is a "tax break for the rich."
Let's consider these two points.
Could Act 221 be abused? Of course, but so could antibiotics. That doesn't mean we should all die from infections instead, and it doesn't mean we should kill the act. It is an argument for sensible regulation and oversight.
Is it a tax break for the rich? Yes, rich and relatively rich people do invest in startups, and yes, the act gives them a tax break. But most people don't have the money to invest in startups, startups need money, and only the wealthy have the money to invest in them.
Wealthy people are going to invest their money somewhere. Would we rather have them invest in the stock market and government T-bills, or in the state of Hawaii, in entities that produce the greatest job growth of any category of industry, i.e. startups?
The tax credit means we are likely to see businesses and investors moving to Hawaii, buying houses, groceries, television sets, golf carts, etc. All of this results in what is commonly called "economic growth."
Any sensible analysis of Act 221 reveals it to be a great economic boon to the state and all the people of Hawaii; not just the rich people. Let us not engage in the rhetoric of class warfare by decrying such beneficial legislation as favoring the rich.
The correct way to view the act is as a tremendous incentive for critically needed capital to flow into even-more critically needed new businesses in Hawaii. Let's hope our lawmakers understand this.
Rob Robinson is the Barry and Virginia Weinman Distinguished Professor of Entrepreneurship and E-Business at the University of Hawaii College of Business Administration.