By Kimberly Burnett and James Jones
The intention of well-designed tax credit programs is to incentivize individuals or organizations to invest or participate in a commodity or service that will increase the greater good (by, for example, stimulating the economy and/or reducing environmental damage), but that they might not invest in without this additional benefit. As many states do, the State of Hawaii offers a dizzying number and variety of tax credits. A quick rundown from last year’s Schedule CR and X, to give you an idea:
1. Refundable Food/Excise Tax Credit
2. Credit for Low-Income Household Renters
3. Credit for Child and Dependent Care Expenses
4. Credit for Child Passenger Restraint
5. Enterprise Zone Tax Credit
6. Low-Income Housing Tax Credit
7. Credit for Employment of Vocational Rehabilitation Referrals
8. High Technology Business Investment Tax Credit
9. Credit for School Repair and Maintenance
10. Renewable Energy Technologies Income Tax Credit
11. Capital Goods Excise Tax Credit
12. Fuel Tax Credit for Commercial Fishers
13. Ethanol Facility Tax Credit
14. Motion Picture, Digital Media, and Film Production Income Tax Credit
15. Important Agricultural Land Qualified Agricultural Cost Tax Credit
16. Carryover of the Energy Conservation Tax Credit
17. Carryover of the Individual Development Account Contribution Tax Credit
18. Carryover of the Technology Infrastructure Renovation Tax Credit
19. Carryover of the Hotel Construction and Remodeling Tax Credit
20. Carryover of the Residential Construction and Remodeling Tax Credit
Recently, the Rhode Island legislature adopted a law requiring that state tax credits undergo a process of regular and rigorous evaluations. This law will require RI to assess the benefits and costs of tax credits, deductions, and exemptions. The evaluations are opportunities to examine the success of tax credit programs, for example whether the incentives affected individual and business decisions, the cost of the program to taxpayers, and the overall level of benefit brought in by the tax credit. These types of assessments will give decision makers information regarding possible changes to the program, if the costs were found to be greater than the benefits, for example.
In Hawaii there are also a number of personal income tax deductions that could be examined, including (but not limited to) the exceptional tree deduction, where individuals may deduct up to $3,000 per “exceptional tree” for qualified expenditures made to maintain the tree on private property (Ordinary trees do not qualify: the tree must be designated as an exceptional tree per Chapter 58 of the Hawaii Revised Statutes). Periodic assessments of each state tax credit and deduction may give decision makers a clearer understanding of the most useful programs. UHERO has done research on some of Hawaii’s most generous tax credits, high tech and solar photovoltaic. Eliminating or redesigning inefficient programs and using the best policies as guides for future legislation could move the state towards a more efficient, fair tax system and improve economic conditions across the state.