Lowell L. Kalapa is president of the Tax Foundation of Hawaii.
In a year when there isn’t a lot of money for lawmakers to throw at their favorite cause or community project, the focus has turned to having lawmakers look like they are concerned about a cause without spending a tax dollar.
How can lawmakers look like they are concerned when there is no money to spend? And if you haven’t noticed or heard someone bemoan the loss of programs and services in the last three years, you are certainly not paying attention. So how can lawmakers look concerned without spending a dime? Why they are asking you, the taxpayer, to cough up a voluntary dollar or two by sending a part of your state tax refund into a special fund designated for that cause?
The mechanism can already be found on your state income tax return. It’s called a state tax check-off, and allows you to designate a portion of your state tax refund for the Hawaii Schools Repairs and Maintenance Fund, Hawaii Public Libraries Fund or Domestic Violence/Child Abuse and Neglect Funds. In addition, there is also a check-off where you can designate money for the Hawaii Campaign Election Fund, which is similar to the one found on your federal return where you can designate $3 of your federal refund for the Presidential Election Campaign Fund. Both have been around for decades.
What is interesting to note is when these check-offs were adopted, they were adopted with high hopes taxpayers would voluntarily put a part of their tax refund toward worthy causes. However, as recent reports note, the amount designated for these purposes has slowly declined. For example, the Schools Repairs check-off garnered $66,406 during fiscal year 2011, down from $72,200 the previous fiscal year. Designated check-offs for Domestic Violence and Child Abuse dropped from $134,445 in fiscal 2010 to $129,045 for 2011.
No doubt there may be enthusiasm in the first years after the check-off is adopted and placed on the income tax form, but as that check-off becomes just another line on the form, those who have little or no interest in the program or issue just whiz by those lines with the focus on completing their tax return and getting it in the mail.
But lawmakers see the check-off mechanism as a means to demonstrate to their constituents that they are concerned about certain issues, and that certainly has become the showcase for this session. A search of the legislative hopper turned up a proposal to adopt a check-off for spaying and neutering animals to reduce the number of feral animals and educate the public regarding the importance of spaying and neutering pets to prevent homeless animal overpopulation.
Other proposals would adopt a check-off for Hawaii public schools science and technology programs, an early learning trust fund and the State Foundation for Culture and the Arts.
A survey of states that have check-off mechanisms on their income tax forms conducted by the Federation of Tax Administrators found that because of administrative costs associated with the check-off programs, states are looking to adopt expiration clauses and other means to remove the less productive check-offs.
Lawmakers seem to view such check-offs as absolution of their responsibility to deal with such problems by turning the response directly over to the taxpayer. However, the cost of administering the check-off merely siphons resources that should otherwise be used for providing needed public services.
Since one of the major jobs taxpayers elect legislators to office to do is to weigh the priorities for limited tax dollars, the check-off mechanism negates that purpose. If lawmakers believe earmarking funds through a check-off system is appropriate, then they might consider placing all programs on the state income tax form for designation and consider repealing the legislative body since there will be no reason for the Legislature to exist because decisions will be made by the income taxpayer.
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.