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TAXWatch: Whither the General Income Tax Credit?

Those of us who are getting along in years may remember the “general income tax credit,” a line on our state income tax return where we could claim a one-dollar credit. The saga of this credit tells us a little about a bold move undertaken in the 1978 Constitutional Convention and our lawmakers’ reaction, which was to beat it into insignificance within a couple of years.

The last time we had a constitutional convention, in 1978, delegates thought that government shouldn’t be keeping the people’s money if it didn’t have to. “Your Committee believes that it is proper for the State’s taxpayers to benefit from any surplus in the State’s general fund balance,” they said in Committee of the Whole Report No. 14.

So, they put before the voters, and the voters approved, what became Article VII, section 6 of our Constitution.  It says that if our general fund balance is more than 5% of general fund revenues for two fiscal years in a row, then the legislature is supposed to enact a tax credit or refund to give some of that money back to us taxpayers.

This credit came to be called the general income tax credit.

In the first year the provision was effective, 1981, the surplus requirements were met, and lawmakers gave the taxpayers a credit of $100 per head.

In 1982, the surplus requirement was met again, but lawmakers thought that $100 was a little much. So, they knocked it down to $25.

In 1983, the surplus requirement was met again, and lawmakers apparently decided that this dumb credit was getting in the way of good budgeting. They slashed it to $1.

For the next five years in a row, the surplus requirement was met again, and lawmakers gave the taxpayers a credit of $1 in each of those years.

In 1989, with Hawaii’s economy apparently on a roll, lawmakers generously approved a $125 general income tax credit!  It didn’t take long for cooler heads to prevail, however.  The credit was cut to $60 the following year, and in 1991—yes, you guessed it—we were back to $1, where we stayed through 1995.

In 1996, the surplus requirement was not met.  No credit was required, and none was given.  This continued through 2000.

In 2001, we once again met the surplus requirement.  Once again lawmakers gave us a $1 credit.  The same happened in 2002.

For the years 2003-2006, the surplus requirement wasn’t met. In 2007, state coffers were in great shape and the general income tax credit again sprung to life.  This time lawmakers tiered it so more would be given to poorer
people.  It ranged from zero to $160.

In 2008 and 2009, the economy sunk but the surplus requirement was met.  Two more years of a $1 credit resulted.
In 2010, the legislature proposed, and voters approved, a constitutional amendment that allowed lawmakers to forgo providing a tax credit if they instead shoved some money into our rainy-day fund.  Thus 2009 was the last year of the general income tax credit.

With that history, do you think the intent of the constitutional convention delegates was met?  Or do you think lawmakers acted like slippery eels and dodged the provision?  If voters think it’s a good idea to tell lawmakers to curb the growth of government, maybe they should consider a constitutional convention where limitations like this one can again be considered, with, hopefully, some reasonable parameters that assure goals are met.

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About Tom Yamachika

Tom Yamachika
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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