Beware of Misleading Assumptions for Tax Relief

by Lowell L. Kalapa, Tax Foundation of Hawaii

Whenever some policymaker comes up with a proposal to grant a tax preference to a certain group of taxpayers, one has to take that proposal with a grain of salt and examine why the tax preference is necessary.

There are no more misleading assumptions than when it comes to the aged and disabled as needing tax relief as federal, state, and county laws are riddled with provisions for tax relief for these groups of taxpayers. Indeed, the aged constantly remind policymakers that they are living on “fixed” incomes and cannot afford higher taxes. As a result, additional exemptions are granted under the real property tax and larger standard deductions are granted under the federal net income tax.

But when one thinks about the elderly, some, more than likely, have accumulated assets along the way of their lifelong careers, paid off their mortgages and no longer have to dress up to go to work. They have raised their kids and sent them off to college and if they were prudent they set aside savings for a rainy day and their retirement. While there are certainly those who are poor and, perhaps, have been poor all their lives, that poverty is certainly not a product of their age.

Contrast that with the young couple who has just started their careers and perhaps have just started their family, just took out a mortgage on a townhouse or condo in Kapolei, and are making monthly payments on a car loan, have childcare expenses and whose salaries are at the bottom end of the pay scale as a result of their recent entry into the labor force. There are no specific tax breaks for these taxpayers. And while this couple may claim additional exemptions because they have dependent children, they don’t get additional exemptions just because of their age, as do the elderly under the income tax law.

Similarly, the disabled are assumed to be less capable than healthy individuals of paying their fair share of taxes. Under state income tax laws, those who are certified disabled may claim additional amounts for the personal exemption and under the real property tax laws of the counties those who are disabled may claim additional amounts for the home exemption. Probably the most presumptive is the treatment accorded under the GET.

Under the general excise tax law, which is imposed for the privilege of doing business in the state, those who are certified to be deaf, blind or disabled are afforded the lesser rate of one half of one percent (0.5%) on all that person’s gross income regardless of whether or not that person was is in the business of wholesaling or retailing, the latter of which would otherwise be taxed at the full 4% rate. No doubt, when this provision was added to the general excise tax law, lawmakers assumed that if one was deaf, blind, or disabled in some way, that person probably wouldn’t be able to have a prosperous business enterprise or probably worked at a subsidized job making very little income.

However, as one former tax director related some time ago, there was a disabled person who owned a very large business as a sole proprietor, meaning all of the income that was generated was gross income to the disabled person. This business employed hundreds of workers and made millions of dollars of gross income. It also had a number of competitors who were engaged in providing the same kind of service as this disabled person’s business provided. However, because the sole proprietor was disabled, the gross income of the business was taxed at the lesser half percent rate rather than the full 4% rate that his competitors had to pay on their gross income.

Providing special treatment for the disabled doesn’t stop at taxes, but other privileges are afforded the disabled just because policymakers assume that because of their infirmity, the disabled cannot afford to pay their fair share. Such is the case of free metered parking for the disabled. While it is understandable that the disabled should be afforded parking stalls that are more convenient to an establishment, such as a stall near the front door of a restaurant or grocery store, it does not necessarily mean that a disabled person cannot afford a quarter for the privilege of parking his or her vehicle in a public parking stall. And yet, that is the privilege extended to those motorists who have that blue or red placard hanging on their rear view mirror.

One of the best descriptions that gets an audience thinking about the irony of the situation is seeing a parking meter flashing red because the Jaguar has a blue plaque dangling from its rear view mirror. Think about it next time you get a ticket because your parking meter ran out of time.

Hopefully, the lesson learned is that neither age nor physical disability is an indicator of the ability to pay one’s fair share of operating our government.

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