In catching up with my business reading from the Holidays, I noticed some articles that I thought reflected glaring misunderstandings of the high tech tax credit program (Act 221/215) and felt compelled to respond.

One article appeared to support the mistaken notion that the state’s high tech tax credits are "an expenditure of public dollars, providing a tax break to a select group of taxpayers that comes at the expense of all other taxpayers."

In fact, the tax credits are not an "expense" at all, but are the government's voluntary reduction of its revenue in hopes of benefiting all of Hawaii's citizens. This distinction between the government’s “expense” and “revenue reduction” is critical to avoiding misunderstandings that evolve into absurd assertions such as lower income workers are subsidizing the tax credits.

It is my understanding that the high tech tax credit program was created in an attempt to benefit all of Hawaii’s citizens by fostering a more diversified economy. It works by having the government forgo a small fraction of its gross annual revenue to allow a group of relatively sophisticated investors to invest their personal state income tax liability into promising high-tech businesses.

In other words, what these investors would have paid to the state in income taxes they instead can invest in fledgling high tech businesses, certified as such by the state.

These investments are not coming at "the expense of all other taxpayers," especially now, when the government has surplus revenues (collecting excessive taxes from its citizens, from my perspective).

All other taxpayers, in fact, pay absolutely nothing for the tax credits offered to the investors and business people for their high-tech investments.

To the contrary, the tax credit program creates increased revenue for the state in the form of increased payroll and GTE taxes, further lessening the aggregate tax burden carried by lower paid workers.

My understanding is that studies in other states with similar programs have shown an average of $6 returned to the state through increased revenues for each $1 awarded in tax credits: a pretty good return on investment.

In one article it was also asserted that an advocate for the high tech tax credit was "condescending" and claimed that the advocate "missed the point" in regard to the tax credit program’s relationship to job creation.

Actually the individual cited, Rob Robinson, an entrepreneurship scholar who runs the entrepreneurship center at UH, was noting that in order to live in Hawaii, many individuals are forced to take a second and even third jobs (NOT because they “like” these jobs), because of low wages in the service and tourism industries.

In his testimony, Prof. Robinson was supporting the diversification of the economy and the creation of high paying individual jobs in the technology sector as an alternative to this low-wage trap.

I have personally made investments based on the high tech tax credit program and think the program is a very useful way to divert funds away from politically oriented bureaucracies that lack market place discipline and accountability, into productive, innovative, and well managed private sector companies.

My personal investments have included companies that:

1. help children in our state's failing schools achieve higher test scores,
2. create a process to turn sugar cane into usable fuel, thus supporting the sugar industry and the jobs involved with it on Maui and Kauai,
3. manufacture nano-sized medical instruments that will allow scientists to decrease the time and cost of developing new medicines, and
4. make machines that purify contaminated water to reduce the incidence of life threatening disease and dehydration in poor areas of the world.

I cannot say how the state would have otherwise spent the revenue for which I am receiving tax credits, but I am certain that the money I invested was spent efficiently and for maximum positive impact.

Thank you for allowing me to offer a different perspective on Hawaii’s high-tech tax credit program.

Jeff Crawford, Ph.D. is a Consulting Psychologist, a board member for the Grassroot Institute of Hawaii, and a Member of Small Business Hawaii. Reach him via email at ExecDevelopment@hawaii.rr.com. This article was originally published on HawaiiReporter.com on 1/10/07.