WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of March 10, 2019 Can’t You Spare Half a Penny for Education? By Tom Yamachika, President “Friends! Romans! Countrymen! We desperately need to lift our public schools and our namesake university into the 21st Century. Senate Bill 1474 will do this by a teensy little increase of half a percent to our general excise tax (“GET”), and by establishing two special funds for the Department of Education and the University of Hawaii that will give a dedicated funding source for these fine departments charged with the heavy responsibility of educating our students. Isn’t that a small price to ask for the future of our keiki?” That speech was made up, but the bill was not. The speech is a summary of what many of the bill’s supporters are testifying in support of it. As of this writing, the bill is very much alive and headed over from the Senate to the House of Representatives. There’s no mistaking that we have problems in our school system. When school officials are reduced to going to their local neighborhood boards to beg for spare change to buy pencils when the overall budget of the Department of Education is in the billions of dollars, something is seriously wrong with the system we now have. Why is it that the multiple management layers that stand between the appropriated king’s ransom and the classrooms allow so little to filter through? And why aren’t we making the effort to pull down available federal funds, as we have written about before? Shouldn’t we be trying to address these problems before putting an even heavier monkey on the backs of our working families? (And, make no mistake, this monkey weighs more heavily on those least able to afford it. We and others have written on several occasions that the GET is regressive, meaning that those with the least ability to pay are hurt the most.) Can the life of our teachers and professors be improved with a “dedicated funding source”? That argument is a smelly red herring. As we said during the debate over the failed constitutional amendment to surcharge real property taxes, our educational institutions already receive a ton of general fund money. Adding a special fund won’t and can’t prevent either this or a future legislature from redirecting those general fund moneys to other pressing needs. Floods on Kauai? Lava devastation on the Big Island? Money for relief from those natural disasters has to come from somewhere. And then there are the other problems like cost of living, the homeless, invasive species, and the list goes on. Big, fat special funds would make oversight of how the money is spent tougher and would lessen accountability even more. And, as we wrote about before, for more than twenty years our legislature shoveled $90 million a year into an “educational facilities special fund.” That fund was in existence between 1990 and 2013. At the beginning of this year, DOE’s maintenance backlog was found to be a whopping $868 million, while that of UH wasn’t far behind with $722 million. Did the backlog swell to that level in just the last 5-6 years? If not, let’s stop thinking that a special fund will be a cure-all. Instead, what we really need to do is fix the inefficiency – whatever is causing the “trickle-out economics” that causes the staggering sums our legislature throws at our educational institutions to be reduced to peanuts by the time it reaches the classrooms. This fix will not be easy. There will be pain. Those whose actions have caused or perpetuated these disasters deserve some head-rolling, and hopefully some of that will happen.
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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of March 3, 2019 Beware of Tax Software? By Tom Yamachika, President Well, we’re in the thick of tax season! It’s that time of year when individuals, gritting and gnashing their teeth, scour through their financial records and begin the arduous process of completing their 2018 federal and state tax returns. Here are some thoughts to keep in mind when filling out your Hawaii return. Do not assume that specialized computer tax preparation software services (you know which ones they are) are going to pick up every nuance of Hawaii tax law, especially after a major federal change. They are usually pretty good at coming to the right answer eventually, but in the first one or two years you should be especially careful, because the reality is that Hawaii-specific changes are not that high on their priority list as compared to those in other, more populous states. First, watch out for the state and local tax deduction. Normally, state income tax and property tax are deductible. The new federal tax law says that no more than $10,000 in state and local taxes are deductible. It doesn’t take much to get to that number in Hawaii, so many of us will find that our state tax deduction is capped at the $10,000. The cap does not apply for state tax purposes, so if your tax software cuts you off at the same amount on your state return, you need to find a way of getting your deduction for the extra dollars for state purposes. Next, if you have a mortgage and/or home equity loan, the federal rules changed so that the deductible mortgage interest may be limited, and the HELOC interest may be disallowed entirely. These new caps do not apply for Hawaii tax purposes, so, just as with the state and local tax deduction it may be worth your while to make sure that your mortgage interest deduction is being handled correctly. [Are you an employer who saw lots of changes in the amount you can deduct from business income? For example, the new federal law doesn’t allow a deduction for parking benefits, it halves the amount you can deduct for food and drinks purchased for the office, and it completely disallows any deduction for business entertainment in 2018. Hawaii did pick up all those changes, so there will be no new break on the Hawaii return for those items. (Corrected, see below. 3/5/19)] There’s some good news and bad news if you own a small business, are a partner in a partnership, are a shareholder in a S corporation, or get dividends from a real estate investment trust. The good news is that you get a new federal deduction, which tax practitioners call the “Section 199A deduction,” that is intended to give a tax break to individuals who conduct business that gets taxed on their individual tax forms. The bad news is that Hawaii didn’t adopt it, so don’t expect to get a benefit of that deduction on your Hawaii income tax return. Also, if you have claimed lots of itemized deductions, the federal return will allow you to add them up, within the limits previously described. On the Hawaii return, if adjusted gross income is above a certain amount then a pre-TrumpTax law called the “Pease limitation” kicks in and eats away at your itemized deductions. As a result, the total itemized deductions that you are allowed to deduct in calculating taxable income may be somewhat less than the sum of the various categories of your itemized deductions. And even if you do use a professional preparer, make sure to go over your draft return carefully before you sign your name to the final version. Make sure that these law changes are included. And good luck with your tax season! Correction 3/5/19: Dear Readers, In the Foundation's latest weekly commentary, "Beware of Tax Software?", we screwed up! When we were talking about the Trump Tax business law changes, we should have said this: Are you an employer who saw lots of changes in the amount you can deduct from business income? For example, the new federal law doesn’t allow a deduction for parking benefits, it halves the amount you can deduct for food and drinks purchased for the office, and it completely disallows any deduction for business entertainment in 2018. Hawaii picked up many business tax changes, but it didn't pick up these. So, there will still be a break on the Hawaii return for those items. Our thanks go to several expert readers who swiftly called me out on this! The Foundation regrets the inconvenience. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of February 25, 2019 Individual Development Accounts, Version 2.0 By Tom Yamachika, President Individual Development Accounts, a program that seems to be gaining traction at our Legislature, is a way to help lower-income people build self-sufficiency. Under conventional welfare rules, applicants for public assistance are awarded assistance based on need, which means that if the applicants have assets that could be sold or used to support the applicant, benefits are either reduced or denied. That, of course, discourages needy folks from saving or working. Would you rather sit idle and get free money, or work and get your earnings taken away? Tough choice. So here is what happens with an IDA. If an eligible person deposits money into the account, a sponsor such as a government agency matches the deposit. The amount of the match depends on the program, but it results in more money being made available for the eligible person’s overall goal such as buying a first home, paying for education or training costs, or starting a small business. Typically, the eligible person will need to sit down with a case worker to define the person’s goals and will sign an agreement to that effect. The person will need to have earned income, and will need to agree to take classes in financial literacy. The funds in the IDA can then be used only for specific purposes. Most IDA programs only let you save a limited amount of money, usually $4,000 to $6,000. This includes the money deposited and any matching funds. Once the limit is reached, no more deposits into the account are allowed. IDA programs also last only a limited number of years, like five years. One important point is that federally funded IDAs won’t count in the calculation of resource limits for other federal programs such as Supplemental Security Income, Food Assistance, and Medicaid. With all of this, there should be no reason for welfare recipients to simply sit on their okoles. They can find employment and go back to school for more education and training, and thereby proceed down the road toward self-sufficiency. The federal government and many states now have IDA programs. At the turn of the century, we had one too. It was enacted in 1999 and is still contained in HRS chapter 257, which we never bothered to repeal even though the program sunset in 2004 – perhaps people were thinking that the program would be resurrected someday. It was run by the Department of Human Services, and it lasted from 2000 to 2004. At the time that our Legislature enacted the program back at the turn of the millennium, the Foundation had glowing things to say about it (and there are some who say it was rare for my predecessor to have glowing things to say about any state program). At that time, the IDA program offered a tax credit to folks who would provide the matching funds to go into the accounts. If was a 50% match, meaning that if Joe Citizen contributed $100 to his IDA and Nonprofit X contributed $100 in matching funds so that Joe Citizen then had $200 to spend on education or starting a business, than Nonprofit X would get a $50 State tax credit. At the time, however, the credit wasn’t well used – 9 taxpayers claimed $3,000 during that program’s five-year history. Discussions at the Legislature are now focused on what IDA Version 2.0 is going to look like. The current versions of the legislation are now in House Bill 334 and Senate Bill 1081. Hopefully, this program can make a positive difference in people’s lives and not cause massive damage to the public fisc. |
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