Lawmakers plan to make use of half of the state’s support cash to rescue Hawaiian companies

After saying for weeks that the latest round of federal aid funds cannot be used to cover tax breaks of any kind, including relief for low-income workers and the unemployed, lawmakers are now poised to raise nearly half of the allocated US $ 1.6 billion Under the American Rescue Plan Act, the state uses dollars to give tax breaks to companies in Hawaii.

The state budget, slated for final vote in the House and Senate on Tuesday, provides more than $ 700 million in bailout funds to protect businesses from tax hikes caused by the rise in unemployment over the past year.

The move has angered critics, including union leaders, who say more should be done to help the working class and the state’s unemployed.

“It is a disservice to Hawaii,” said Eric Gill, finance secretary and treasurer of Unite Here Local 5, which represents 12,000 people in the hospitality, healthcare and hospitality sectors in Hawaii.

“Legislation plays with the money and plays games to help the richest of us.”

Gill said the Hawaii tourism industry includes some of the largest companies in the world that don’t need tax breaks.

When Hawaii’s unemployment rate rose last year due to the coronavirus pandemic, government-imposed lockdowns, and the decline in tourism, the state-run unemployment benefits trust fund, which is backed by businesses and used to pay unemployment benefits, quickly ran out of steam.

The state took out a federal loan last year to continue paying unemployment claims, but companies were on the hook to repay that money in the form of higher taxes. The automatic tax increases are designed to ensure that the trust fund is replenished. The state decides to take out the full amount of the loan, which is approximately $ 740 million.

Governor David Ige, top lawmaker and business interest, said it made sense to give tax breaks to companies during the recession, especially in Hawaii where so many companies have struggled to survive in the volatile economy. The tax breaks would not only help companies stay afloat, but also help employers get back on their jobs, which will boost the economy as a whole.

Last year, other states used money from the Coronavirus Aid, Relief, and Economic Security Act, the federal aid package passed under former President Donald Trump, to replenish their unemployment benefit trust funds and prevent corporate taxes from rising. But the practice sparked some level of partisan discussion, with Republicans backing corporate tax cuts and some Democrats arguing that the money should go directly to those most in need.

When President Joe Biden signed the US rescue and recovery plan on March 11, federal guidelines associated with the rescue package appeared to prevent such practices. States were told that they would not be allowed to use the funds to directly or indirectly offset tax cuts.

Shortly thereafter, Home Finance Chair Sylvia Luke said any tax breaks that went through the legislation were sure to be dead for the year, including a bill that exempts unemployment benefits from state taxes and a bill that increases the tax credit for earned income Income extended. This gives low-income workers tax breaks.

Actions were quickly stopped, and disgruntled supporters arguing that federal guidelines did not automatically derail bills. In fact, the federal government had declared that states could still make tax cuts as long as they generate additional income elsewhere to cover the costs. The unions worked hard to get the legislature revived the bill to exempt unemployment benefits from unemployment tax and another bill to raise the minimum wage, which has also been postponed.

But Luke (D, Punchbowl-Pauoa-Nuuanu) and other House leaders were determined that federal guidelines prohibited the use of federal aid funds to cover tax breaks, saying it was too difficult to collect taxes in other areas to make up for this shortfall. The bill to exempt unemployment benefits from state taxes was expected to cost the state about $ 190 million. The cost of the tax credit is approximately $ 18 million per year.

Rep. Roy Takumi (D, Pearl City-Waipio-Pearl Harbor), who backed a bill to exempt unemployment benefits from state taxes, said the state restrictions were ultimately really irrelevant to whether the state could give workers and the unemployment tax breaks . He had urged lawmakers to split the money, give companies $ 500 million in lieu of the full tax break, and use the remainder to cover the unemployed tax break.

Takumi said many residents looking to cut unemployment couldn’t afford to deduct state taxes last year and now owe hundreds of dollars that they still can’t afford.

“Obviously, the wisdom of the legislature decided to unburden the business world 100% and the unemployed 100%,” he said dryly. “It’s a moral choice, not a financial choice.”

In the meantime, heads of state are waiting for further federal guidance to ensure they can use the federal funds to cover the cost of replenishing the trust fund. However, a review of state requirements reveals that this is likely a moot point for Hawaii.

Legislators accelerated the bill to cut unemployment taxes for businesses earlier this year and sent it to Iges’ desk in February, well before the state budget was finalized.

Ige signed the bill on March 2nd. Federal regulations only prohibit states from using federal funds to cover tax cuts that have been implemented since March 3.

“The timing seems interesting, doesn’t it?” Takumi said when asked for the date.

Ige didn’t respond to questions about whether the bill was rushed to avoid the upcoming federal restriction on funds from the American Rescue Plan Act.

At the time, heads of state said the bill was speeded up because the state Labor Department provides companies with tariff calculations in mid-March, although unemployment taxes for the quarter won’t be due until April 30.

Luke said it was probably just a coincidence.

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