Sunday, September 15, 2019
Hawai'i Free Press

Current Articles | Archives

Sunday, February 11, 2018
​The Value of a Refundable Credit
By Tom Yamachika @ 4:00 AM :: 2150 Views :: Tax Credits

The Value of a Refundable Credit

by Tom Yamachika, President, Tax Foundation Hawaii

In the 2017 legislative session, our legislature passed an earned income tax credit (EITC), which its supporters maintain is the best solution to lift families out of poverty since sliced bread. At the Department of Taxation‘s urging, however, the EITC was made nonrefundable. Advocates clearly didn’t like that, and are already imploring the 2018 legislature to make the credit refundable.

Well, what’s the difference? Let’s start with a nonrefundable credit, which is current law. Suppose you either have lots of credits or not very much income, so you have more credits than tax liability. If you have made tax payments throughout the year, through wage withholding perhaps, you still can get all your payments back. But once the tax liability hits zero, there’s no more. The state does not cut you a check, but you get a credit carryover which can be used against next year's tax liability.

In contrast, a refundable credit is just as good as cash. Not only can this type of credit reduce the amount of tax owed, but if the tax liability is less than the credit the State will cut the taxpayer a check for the difference.

Why is the State concerned about issuing refundable credits? There are several reasons.

First, issuing a refund is administratively expensive. In most businesses, the internal process necessary to send money to someone goes through several checks and balances to make sure that no mistakes are made. In our state government, we need to do those processes twice. At the Department of Taxation, staff can ask for a refund to be issued but no one can issue a check. Instead, a document called a "refund voucher" is sent to a different department altogether, the Department of Accounting and General Services (DAGS). Once DAGS gets the refund voucher, it goes through its own processes, checking to see if the recipient doesn't owe another agency for example, and then issues the check.

Second, a refund can become a target for bad actors. We earlier pointed to reports from the U.S. Treasury Inspector General for Tax Administration estimating that more than 20% of all federal EITC payouts were improper. Other studies estimated that about half of these so-called improper payments were paid out because someone made a mistake. Perhaps the taxpayer was confused by the tax form, which is admittedly complex. The other half were paid out because of bad actors. Maybe a taxpayer claimed credits for kids they don't have. Maybe an unethical tax preparation service filled in data claiming credits for people who exist but aren't part of the taxpayer's family. Once the cash goes out, however, it's tough to get back. In Hawaii, our credit is 20% of the federal credit so a smaller check would go out, and because the number is smaller the Department of Taxation might not be motivated to chase down the improper payments given the number and severity of other items on their plate.

Indeed, the Department recently estimated that changing the Hawaii EITC to a refundable one would cost the State $32 million more than a nonrefundable credit. It’s not clear how they came up with that number. But that amount of money definitely could cool a few sweltering classrooms, or perhaps fix a few plumbing facilities at the airport. In this situation, what are our priorities? Where is the need greatest? Or will our lawmakers simply punt on the question and soak the taxpayers even more to make up the difference?

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

808 State Update AM940

ABCDEFG Blog

ACA Signups Hawaii

ACCE

ALEC

Alliance Defending Freedom

Aloha Conservative Alliance

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii

AMVETS-Hawaii

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

Conservative Forum for Hawaii

CSIS Pacific Forum

DAR Hawaii

DeedySupport.com

DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii

FIRE

Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute

Habele.org

Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Families for Educational Choice

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling

HIEC.Coop 

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube

HPACC

Hump Day Report

I Vote Hawaii

If Hawaii News

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

Judgepedia Hawaii

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes

KeyWiki

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

MentalIllnessPolicy.org

Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii

NARTH

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Salvage The Rail

Save the Plastic Bag

School Choice in Hawaii

SenatorFong.com

SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Cope

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT