State must review special tax breaks
Tax policy seeks the most effective means to raise money for government operations, but among its concerns is maintaining a balance with overall economic health. Businesses seen as crucial to the local economy often will get a break with the intent of stimulating moreactivity — in the hope that over time, this also will provide a more sustainable stream of revenue for public needs.
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Tax policy seeks the most effective means to raise money for government operations, but among its concerns is maintaining a balance with overall economic health. Businesses seen as crucial to the local economy often will get a break with the intent of stimulating more activity — in the hope that over time, this also will provide a more sustainable stream of revenue for public needs.
This surely was part of the rationale for state lawmakers in 1997 and 2001 when they gave tax exemptions to Hawaiian Airlines and its then-rival Aloha Air, which were competing for a limited market.
However, it’s unclear whether it still makes sense, now that
Hawaiian is the surviving — and thriving — carrier dominating the interisland business. Only far better data analysis, more than what the state tax office currently offers, can provide the clarity taxpayers need.
Few would argue with the original argument, that the airline industry does merit some special consideration. Airlines For America, an industry trade organization, has compiled state-by-state comparison data making a compelling case.
According to its study, Hawaii’s economic reliance on the airlines is the highest by far of any state. The organization calculated that nearly 186,000 jobs in this tourism destination owe their existence, directly or indirectly, to commercial aviation. That amounts to
21.6 percent of jobs in the state being attributable to airlines.
But none of this data should equate to a permanent pass to Hawaiian Air. Lawmakers need to re-examine the tax exemptions and consider capping their amount when they convene next month for budget planning.
To be sure, the airline industry is challenging even under the best circumstances. Hawaiian sought bankruptcy protection twice in recent decades, in 1993 and again 10 years later. Aloha also filed twice for bankruptcy before it ended its passenger business in 2008. High overhead costs of fuel and labor made the profit margins especially thin, compounding the strain of successive recessionary slumps.
The first tax break was enacted in 1997: an excise tax exemption for expenditures on servicing and maintaining aircraft, or for the construction of Hawaii-based aircraft service and maintenance facilities. And in 2001 the Legislature passed what became Act 210, excise-tax exemptions for payments on leased aircraft and leased aircraft engines.
The latter exemption produced estimated savings of $4 million to $5 million annually, said airline spokesman Alex da Silva; Hawaiian has not yet calculated the value of the maintenance exemption, he added.
House Finance Chairwoman Sylvia Luke said she will meet with industry officials as well as the state Department of Taxation, and initiate discussion on state tax breaks.
This is a critical conversation. The tax agency, in cooperation with the beneficiaries of the exemptions, must provide better tracking of the tax breaks it provides to selected industries. The department’s information technology system has been unable to gauge the impact of various tax initiatives in the past, and this once again demonstrates why modernization must be a priority, and without delay.
The essential question to be answered: What is the benefit to the taxpayer, once the loss to the tax coffers is put in the balance with economic stimulus?
Da Silva said that Hawaiian competes with other airlines for its North American and international business, and some receive similar breaks from the states where they are based. This includes California, Texas, Georgia and Illinois, he said; the Hawaii law helps to “level the playing field.”
That’s important, of course, but the state must be sure it’s not unfairly tipping it too far in one company’s direction.