Legislative meddling with tax code hasn’t gone well

Strange as it may seem, there is a reason for the Legislature to come back next year.

The 76 legislators have to do something about the absolute muddle they made of state tax policy.

Earlier this week, the state Council on Revenues met and predicted that Hawaii would not collect as much tax as previously predicted. The group of independent economists said there is nothing wrong with the economy — it was chugging along nicely — but the state had two problems because of tax law.

First, instead of collecting money, the state is giving people money.

This caused the council to lower rate of growth for the next fiscal year from 7.5 percent to 5.3 percent.

That is about $110 million less than anticipated, which is both bad news and foreshadowing an alarming trend.

Hawaii gives you a tax credit for buying a solar photovoltaic system. Although that seems like a good idea, the operating principle is, "No good deed goes unpunished."

The tax credits are estimated to be costing the state about $70 million a year, and because of the inexact way the tax law is written, taxpayers are becoming tax collectors.

Plain English and the state Tax Department do not rest comfortably with each other, and as soon as the tax credit was proscribed, people started to redefine what defines a photovoltaic solar system. If you get a $5,000 credit for every system, what do you get if you have two systems, or three, or as some businesses are arguing, 400 systems?

The Tax Department tried to redefine the system, then the Legislature got hung up on whether or not to limit each system to just one tax map key listing or one "piece of property."

There was talk of limiting it to a specific dollar amount or a percentage of the total cost.

Eventually, the Legislature did nothing and the economists now predict the indecision will be costly.

House Speaker Calvin Say agreed, saying the problem is before next year’s session and it is likely to be even more expensive.

Next up for tax credits are the huge, expensive wind generators now starting to be built around the state. Say reasons that if the electric panels on neighborhood roofs are costly, just wait till the big guys come in with multimillion-dollar wind turbines asking for 20 percent of the cost to be returned as tax credits.

The state’s other problem is that when the Legislature tried to get more money by cutting tax exemptions, it almost completely failed.

Two years ago, the Legislature dropped what it thought were more than $340 million in excise tax exemptions.

As it turned out, just because there was a tax exemption on the books, didn’t mean there was anyone using that exemption.

Lowell Kalapa, president of the Hawaii Tax Foundation, says the council on Revenues already dropped the estimate in half last year.

This week the council came back and said dropping those exemptions netted the state only about $50 million.

"What is happening is that the Legislature’s meddling with tax credits and exemptions is messing up the council’s forecasts; they should get out of the way and let life go on," said Kalapa, a former member of the council.

The tax exemption fumbling may also show that if dropping exemptions doesn’t do much, then perhaps Hawaii as "tax hell," as critics claim, is not that hot.

———

Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser.com.