Tax credits are fine, but tax cuts are better
By Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii
Gov. Josh Green’s big tax plan, the “Green Affordability Plan,” promises to put $300 million back into taxpayers’ pockets, making it one of the biggest tax reductions in Hawaii history.
But can the GAP live up to that promise?
For the past several years, the Grassroot Institute of Hawaii has urged Hawaii lawmakers to cut taxes. With a surplus of more than $10 billion expected over the next four years, Hawaii can afford it. Tax cuts would put money back in people’s wallets, reduce the cost of living and spur economic growth.
If the governor’s GAP plan were based around tax cuts, there wouldn’t be enough space on this page to contain all of my praise. But his plan is mostly about tax credits.
What’s wrong with tax credits?
Politically, they are a gold mine. They can target specific groups, they sound great on paper, and they feel like a bargain for taxpayers. Who doesn’t like to get money back?
Gov. Green’s tax plan has tax credits galore — for food, low-income renters, child and dependent care, and teachers who buy supplies for their classrooms with their own money. It also would expand the earned income tax credit.
It all sounds wonderfully generous, but credits involve a lot of paperwork — something not everybody is good at — and just like that promise from your cousin to pay you back the $20 he owes you next month, $20 today won’t be the same as $20 up to a year from now when the next tax season rolls around.
Probably the worst part about tax credits is that lawmakers often like to offset them with tax increases. It is one thing to create tax cuts and credits as part of a broader plan that includes smart, responsible budgeting. It is another to offer tax breaks with one hand while increasing taxes with the other.
Fortunately, Gov. Green has not said anything about increasing taxes. Nevertheless, Hawaii taxpayers should remain alert to the possibility.
The only actual tax cuts in the governor's plan, if you could call them that, would involve increasing the state’s income tax deductions and exemptions. Together, these two changes would save Hawaii taxpayers about $162 million in 2024. That is a welcome move.
Also welcome is the governor’s proposal to peg the standard deduction, personal exemption and the state's many income tax brackets to inflation, which means lower-income earners won’t get pushed into higher tax brackets. This would save taxpayers about about $26 million in 2024 and is a terrific idea.
So overall, there is a lot to like about Gov. Green’s GAP plan. Any tax plan that saves Hawaii residents money has to be a good thing — in fact, a great thing!
In the future, however, efforts to reduce Hawaii's tax burden would have more impact if they focused less on tax credits and more on straight up tax cuts — either by eliminating certain taxes or through lower tax rates.
E hana kākou! (Let’s work together!)
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Akina assesses ‘GAP’ plan, sees room for improvement
from Grassroot Institute of Hawaii, January 31, 2023
Keli’i Akina, president and CEO of Grassroot Institute of Hawaii, joined radio host Johnny Miro of H. Hawaii Media this past Sunday morning to talk about Gov. Josh Green’s State of the State address, and “Overall,’ he said, “there was a lot to like.”
Hawaii’s new governor introduced his Green Affordability Plan, which includes initiatives to decrease homelessness, fund housing and provide tax relief.
Regarding taxes, Akina said Green’s “GAP” plan seeks to provide tax credits for food, rent and child care expenses primarily to Hawaii’s lower- and middle-class families.
“The problem with tax credits, however,” Akina said, “is that sometimes people don’t remember to file for them.” It would be simpler, he said, “to just cut the tax rate for food, since the lower rate wouldn’t run into that issue.”
Akina also expressed concern about Green’s proposal to increase the state’s earned income tax credit, which is intended to help lower-income residents.
“On the surface that may sound good,” Akina said, “but at the federal level, investigators have found high levels of fraud. A much simpler reform would be to just cut the income tax rates on lower-income individuals and families.”
Akina noted that Green did announce new funding for healthcare, but said he wished Green had included an exemption from the state GET for medical services. He also said the governor should focus on loosening regulations that make Hawaii a tough place for doctors to practice and live
Regarding Green’s emergency proclamation intended to help the homeless, Akina said he was glad to see the governor targeting red tape, “but emergency orders aren’t the way to do it.”
The problem of homelessness, he said, took decades to come about, and “it’s not an ‘emergency’ with a quick fix to solve the problem. What we need to focus on is working in the Legislature to change the laws.”
Akina said he would like to see the details about Green’s proposed $1 billion in funding for the Hawaii Public Housing Authority, but “in general,” he said, “it sounds like throwing more money at a problem that has long been impervious to more government spending programs. The real key is home ownership. Public housing doesn’t really provide that.”
Asked If he thought the state’s Aloha Stadium project could become another boondoggle, Akina replied: “Based on the record of past government projects in Hawaii, there’s a good chance it’s going to be delayed and come in way over budget, like the Honolulu rail. … But if our legislators are determined to do it, their goal overall should be to minimize the burden on the Hawaii taxpayers.”
He said a better option might be to “sell the land and rezone it for housing, which could be built by private homebuilders.”
1-30-23 Keli‘i Akina with host Johnny Miro on H. Hawaii Media radio network
Johnny Miro: Good Sunday morning to you. It’s time for Sunday morning public access programming on our six Oahu radio stations here: 101.1 FM, 101.5 FM, 103.9 FM, 107.5 FM and 96.7 FM along with 97.1 FM.
I’m Johnny Miro. And joining us once again would be the president and CEO of Grassroot Institute of Hawaii, Grassroot Institute of Hawaii, Keli‘i Akina. Good morning to you and happy Sunday to you, Keli‘i.
Keli‘i Akina: Aloha to you, Johnny, and to all your listeners. Great to be with you as always.
Miro: Well, we just had a State of the State address by the new governor, Gov. Josh Green. A lot of reaction. The governor announced new initiatives to decrease homelessness, fund housing and also provide some tax relief. What’s your overall reaction while you were listening to the governor’s speech?
Akina: Well, Johnny, I’d have to say, overall, there was a lot to like. We may not agree with everything, but sure, there were a lot of great proposals that are outstanding and so we give kudos to the governor.
Miro: OK, let’s talk about some of the specifics of the governor’s proposal, specifics about that. Perhaps the biggest one was his Green Affordability Plan, basically a tax relief plan, correct?
Akina: Right. You know, that plan will do a lot of things. It will promote tax credits for food, rent and child care. His aim is to increase the standard personal income tax reduction and index the state’s income to inflation.
And you know there’s a lot to unpack here, but we’re glad the governor is taking that issue seriously.
Our cost of living, I’m sure you agree, Johnny, is going through the roof. It’s a real problem. I’m glad he’s focusing on that. And that’s actually led to a lot of people leaving Hawaii, and that’s a real problem that has to be addressed.
I like the governor’s plan to index the tax brackets to inflation and increase the standard deduction and the personal exemption, which is like a pre-tax standard deduction. What this would provide is relief across the board to make sure that people aren’t pushed simply because of high inflation, or aren’t punished because of high inflation, which is punishing them enough already.
I also like the teacher tax credit, which would give the state teachers $500 back if they spend their own money on school supplies. And that would apply to teachers in both public and private schools.
And meanwhile, the food, rent and child care tax credits would give relief primarily to low- and middle-class families.
The problem with tax credits, however, is that sometimes people don’t remember to file for them, or they file incorrectly, so they don’t get the relief they need, so the state merely keeps that money. It would be a lot simpler to just cut the tax rate for food, since the lower rate wouldn’t run into that issue.
So, as you see, there are a lot of things that we do like about what the governor presented, but there are some challenges that I’ll talk about a little bit later on in the interview.
Miro: There’s a lot there to unpack. Now, is there anything you don’t like about the tax-relief plan?
Akina: For one thing, it increases Hawaii’s earned income tax credit. And that’s tied to the federal EITC program that gives relief to low-income individuals.
Now, on the surface that may sound good, but at the federal level, investigators have found high levels of fraud, or at least what they call improper payments.
According to a report by the U.S. Treasury Department in 2021, 28% of EITC payments were improper. And what that means is that 28% of the money in the program was given to people who shouldn’t have gotten it or people who received more money than they should have.
Now, not all of these improper payments are outright fraud, but it does raise some concerns.
A much simpler reform than increasing the EITC would be to just cut the income tax rates on lower-income individuals and families. That would provide relief and make sure that relief got back to the people who actually deserve it.
Miro: Hmm. Now, is there anything that you think Gov. Green should have included in his tax-relief plan?
Akina: Yes. An exemption from the state general excise tax for medical services. And a pledge not to increase taxes in general. I would’ve liked to have seen that.
Miro: Speaking with Keli’i Akina, president and CEO of the Grassroot Institute of Hawaii, Grassroot Institute of Hawaii.
While he was speaking, Gov. Green, he signed an emergency order relating to providing shelter for homeless individuals. The order was, you know, waived a number of state and county laws. What’s your take on that decision?
Akina: Let me say this. I was glad to see the governor targeting red tape. But the problem is this: Emergency orders aren’t the way to do it.
This problem that created our housing crisis and, as well, the overall problem of homelessness, took decades to come about. And it shows a system that’s not working. It’s not an “emergency” with a quick fix to be able to solve the problem.
Instead, what we need to focus on is working in the Legislature to change the laws. That particular emergency order also waived some laws that are in the public interest.
But if you’ve read the order, as I have, you’ll see there’s just a long list of laws that are all of a sudden suspended for the sake of solving the homelessness problem.
For example, it waives the public records law, which means it’s going to be very hard for the media and watchdog groups to get information about the projects involved.
It also waives the state procurement laws, which ensures that the state contractor handles in the highest ethical fashion and in a competitive and fair manner.
Those are some concerns that are raised with the emergency act.
Miro: OK. Gov. Green didn’t stop at homelessness. He said pushing more housing would be his No. 1 priority and is proposing more than $1 billion in funding for the Hawaii Public Housing Authority. Are you on board with that?
Akina: Well, I need to see the details first, but in general, it sounds like throwing more money at a problem that has long been impervious to more government spending programs. The real key is home ownership. Public housing doesn’t really provide that.
The governor did mention cutting the red tape, but this application of the concept was a little bit narrow, applying only to certain kinds of housing projects.
Johnny, we have to go deeper than that, such as changing our zoning laws. That’s something that Grassroot has been talking about for a long time. These laws need to be changed to allow for more multi-family homes.
We also should reform the state Land Use Commission, which slows down new homebuilding. These are longer-term solutions that are necessary to put in force to solve the problem.
Miro: Johnny Miro talking with Keli‘i Akina from Grassroot Institute of Hawaii.
And the governor also announced a lot of new funding for healthcare. He plans to create some new training positions at the [University of Hawaii] and fund student loan repayment for behavioral health providers. Now, what’s your take on these actions, Keli‘i?
Akina: Well, I’m glad to see the governor putting in a concerted effort to attract new healthcare workers. We absolutely need more, and as people know, our governor is a doctor himself. But he should also focus on loosening regulations and making Hawaii a more attractive state for doctors.
And what that would look like, and what I would’ve liked to have heard from the governor, would be, for example, to exempt medical services from the state’s general excise tax, as we mentioned earlier, or reform the state’s medical licensing laws, such as by joining interstate licensing compacts.
And that would make it a lot easier for certified doctors and nurses and other personnel to come to Hawaii without having to get another Hawaii license.
Or lower the income taxes across the board, that would help doctors to find Hawaii more affordable.
Or make it easier to build housing overall, which doctors need as well. The lack of it has made it difficult to encourage medical personnel to come to Hawaii because, quite frequently, they can’t find suitable housing.
Miro: We have the other big project — of course, the rail is there — but Aloha Stadium, the entertainment district. Some lawmakers want to see it have affordable housing nearby, and some think it might just turn into another quote unquote “boondoggle.” What are your thoughts about this massive project, the Aloha Stadium entertainment district?
Akina: Well, ideally, the state should not be in the stadium-building business. But if our legislators are determined to do it, their goal overall should be to minimize the burden on the Hawaii taxpayers.
But based on the record of past government projects in Hawaii, there’s a good chance it’s going to be delayed and come in way over budget, like the Honolulu rail.
Details have yet to come out on who will construct the new stadium and how much it will cost, but we have to look for that. The Legislature budgeted $420 million, but likely that’s not going to be enough.
A better option might be to sell the land and rezone it for housing, which could be built by private homebuilders.
So this is not going to be an easy issue to navigate in the governor’s administration.
Miro: The governor also concluded his speech with the discussion about government accountability and a culture of public service. With the Red Hills spill and the rampant corruption, what can lawmakers actually do to make Hawaii state government more transparent?
Akina: Well, one thing they could do is to take a hard look at the report, which just came out by the Commission to Improve Standards of Conduct. It recommended a laundry list of reforms to curb corruption, including stricter penalties for corruption and more restrictions on fundraising events, among other things.
The governor should also support the recommendations in a letter that Civil Beat Law Center, along with numerous organizations, including Grassroot Institute, sent to Gov. Green, and it was signed by more than two dozen media and government watchdog groups.
Here are some of the recommendations that we sent in:
1) State agencies should err on the side of transparency, not secrecy.
2) Public records should be cost-free for media and watchdog groups. Sometimes these cost thousands of dollars in order to obtain.
3) The state Office of Information Practices should make it easier to obtain government records.
Now, Gov. Green and his State of the State address actually mentioned this letter and he agreed that public records need to be virtually cost-free. That would be a good first step.
Miro: Alright, so as far as the State of the State address, we pretty much addressed everything. Keli‘i Akina from Grassroot Institute of Hawaii.
Anything else to add as we say aloha this Sunday morning?
Akina: Well, this is the beginning of a new administration’s term, and I would encourage everybody to rally around the governor, expect the best, work with him, and see what he comes up with as he goes forward. He’s got a challenge before him as he works with the Legislature.
And while we don’t necessarily agree with all of the policies he’s suggested and put forth in his opening speech, we can see that there are positive things that all of us can work together on to build a better Hawaii.
But I’ll be back, Johnny, with your invitation to the program again in the future and keep all of the listeners as informed as we can.
Miro: Looking forward to that. How can they find your work at Grassroot Institute?
Akina: We invite everyone to come to our website, grassrootinstitute.org. That’s grassrootinstitute.org, and you’ll find a wealth of information there. You can sign up for our weekly newsletters and reports.
Johnny, thank you for letting me be here today on behalf of Grassroot Institute.
Miro: No problem. Thanks for joining us this Sunday and enjoy the rest of your weekend, Keli‘i.