 talking tax with Tom Yamachika here on a given Thursday at 10 o'clock. I'm I'm Jay Fidele. This is Think Tech and we always learn new, exciting, and sometimes disturbing things in talking with Tom. Tom, you are a disturbing person. What can I say? Welcome to the show. With that kind of welcome, I don't know what to say, Jay. So, you know, we're talking today about the great tax credit once, and it's really all about the earned income tax credit, EITC, and we'll get into the weeds on that in a minute. But first, I want to ask you, if we want to give relief to people at the low end of the income scale, and maybe not so much relief to people at the high end of the income scale, why don't we just reorganize and rationalize the schedule of tax rates? Wouldn't that be so much simpler? No, I entirely agree with that. Matter of fact, there's a similar debate brewing on the federal side because the Congress has enacted so many new things that use basically the IRS as a welfare distribution system. They're having IRS send out monthly credit checks every month, you know, which was never done before, and they're really not equipped to do that. That's not what they do. They're there to take in money, not get out. Okay. Yeah. And they have been behind the eight ball on budget funding for years. The Congress hasn't given them enough money for them to do what they want to do anyway. Absolutely. And now they're kind of saddling them with other stuff that human services or social security is much better equipped to do. You know, it's like everybody is terrified over tax reform because you don't know who it's going to bite. And you don't know how the sausage will be made, so to speak, once it gets into a legislative forum. And of course, that's still the case. It'll probably always be the case. But ideally, and maybe this is what constitutional conventions are all about. Ideally, you sweep the whole thing out the door and start again. And countries, for example, in Europe, that, you know, have the ability to do that and do serious tax reform, come up with better systems. They're brand new and they don't have this baggage that we seem to have. What are your thoughts on that? Oh, yeah, no, I totally agree. For a long time, we at the Foundation have been saying that the thing that the legislature should be doing is basically getting rid of the old, you know, getting rid of the tax brackets, some of which date back to the 1960s or before. And just revamping the schedules so we don't tax people who are already in poverty deeper into poverty. Because, you know, back in the 60s, we, you know, we, you know, taxing somebody who made a $1,200 was meaningful. Now it's not. Right. I mean, a few years ago, I took a look at, you know, where the poverty line was with relation to our tax brackets, and somebody earning at the federal poverty line is in our fourth tax bracket, fourth from the bottom. So not the lowest, not the second lowest, not the third lowest, but the fourth. Okay. I mean, that's, to me, that's insane. I mean, they ought to be taxed at zero or close to it, in my opinion. Yes. The other thing is the other thing is legislations are not really equipped to make, you know, adjustments in rates or in, you know, in these various provisions, because they don't get the information fast enough. They don't understand that there's four levels of poverty there. They don't, they don't know that, and nobody is telling them real time what's happening. And I've always felt that if we wanted to do this kind of rate modification, it should be an algorithm. You know, this is, this is the economy of the state. These are the people who are disadvantaged. These are the people who are not. And the algorithm figures it out based on the statistics of income of the state and bingo, you have a new rate schedule and it can change, you know, year to year, whatever. I know that's not the subject of our show. I'm just throwing that out there because I'm, I'm into technology and I'm into algorithms. Oh, bad, bad word. Anyway, Tom, let's talk about, let's talk about the earned income tax credit. What is the purpose of such a thing? And what is this current status? We have an earned income tax credit, you know, not only does the IRS have it, and it's been touted as the, you know, the greatest program since sliced bread to get people out of poverty. But it is exceedingly complex. And it's very tough to administer on the federal level, but, you know, our legislature and our representatives and senators in their wisdom said that we should do that for Hawaii also, so we did. Okay. And now I think is a good time to be talking about it because many of our working families are struggling through the income tax forms as we speak. So it turns out that because of the way the forms are put together, they're going to need some spoilers to help them actually find things that they should be finding. For example, yes, we have a state earned income tax credit, but where the heck is it? And we're going to go through some of the forms so that I can show you what the problem is. Please do. Please do. All right. So let's start with the first slide. This slide here is a part of our, after that one, there we go. That one is a part of the form and 11, which is the income tax return that most Hawaii residents fill out. This what I'm showing here is that part of the return that where you claim credits. Right. I mean, so there are certain lines on the return for different kinds of credits. You see that? Not well, not well, but I do see it. But let me let me let me just interject one point. If the federal government has this and if the state wants to do it and if the state so often just copies out what the federal government is doing, you know, like bingo, they're doing the same thing. We adopt, ratify the federal system. Why is that not happening here? And why not? No, that's this is another copycat credit. It's an additional sweetener on top of the federal tax credit. You need to claim the federal tax credit to be eligible for ours. So it's the same thing. The calculation, the form is all the same thing. The rates are different. I mean, we have a smaller tax, so our credit amount is different. And the federal income tax credit is refundable, which means that if you don't owe tax and you have some credit, the federal governor will wait you a check. Okay, ours is non refundable, which means that if you don't owe tax and you have this credit, our government will not wait you a check, we will carry you over the credit to other years so that you have to pay tax in the future. Okay. Okay. But who knows this? I mean, not many people who, you know, are normal working families, not many people would know this. So let's kind of go back to your slide number two, which shows the tax form and say, well, okay, where is, where do you claim the, there are income tax funds? And take a look at that part of the return. There isn't anything that says income tax here. Okay. So we at the tax foundation are going to give you a spoiler. So let's go to the next slide. See that little yellow oval? That's where you claim the credit. It's on a line that says total non refundable credits attached to get in CO. Okay. So that means we've got to pull another form. Okay. So let's go to the next slide. And the form is called schedule CR schedule of tax credits. Okay. I need to give you another spoiler over here. If you look on the department's website to pull the form down. Okay. You're probably looking at the end, the end forms, right, because N11 is the income tax form and it starts with an N. So you look all through the end list and it's not there. Why? Because in their infinite wisdom, our tax department said schedule CR starts with an S. So you go to the S's and there it is. So you pull down schedule CR and so this is how it starts. So it names a few tax credits. Let's go to the next slide. And here it names a few more tax credits. And let's go to the next slide. And this is the last page of the form. No. Where do you suppose the army income tax credits? It doesn't say. It doesn't say. It just gives you lists of form numbers. So you have to figure out that there is indeed another form you have to pull. They don't tell you what it is. By the way, even if you look in the instructions to the N11 and you look for earned income tax credit, it's not there. So yeah, I mean our tax office is making the stuff really easy to find. Well, it sounds like this is something that a tax return preparer would like to have because the average Joe, including the average Joe in poverty, won't have a clue on how to do it. And he will have to go to a tax return preparer to get it done. Yeah. So the average Joe's who can afford the H&R blocks or the account to the CPAs, yeah, they can certainly do that. But if they don't, and they try to vote themselves, you know, I did that for a few years myself. And now I have tax software. Yeah. So, you know, I mean, what's interesting about this is it all seems to be miles away from effectuating the original purpose. And the original purpose is to alleviate my right poverty in this state, to give the people who are economically disadvantaged a break. Of course, the first way is with housing and the cost of the cost of occupancy, which we are not doing very much in that department. And then of course, this is very much in that department. But let me just kind of go in and get through a couple more slides. So we were showing you that part of the schedule CR. And let's go ahead and bring that back. Here's the spoiler. Okay, the spoiler is the next slide with the green text. And it says, here's where, you know, here's what each of these little form numbers stand for. So you have six or seven different things. And yeah, I mean, you know, the credit names are kind of long. But I mean, why don't they, you know, just name what these stupid credits are so people have at least a ghost of a chance of finding them. But as it turns out, they kind of take it from the perspective of, well, really, really, you need only the tax payers really, you need to know about this. So everything's kind of like put in code. N356, oh yeah, you need an N356. And then you need a schedule CR. And you need to carry that over to the form N11 and the non-refundable credit code. How many ordinary people know that? So we got stats on how many people who theoretically qualify for the credit are actually taking the credit? I don't know if we do. Because it strikes me that, you know, it's hard for anybody at any end of the scale to fill out tax returns that are written this way. And for somebody who may not have great education or any money, or friends, you know, to call and compare notes with, that person going to have a lesser chance of finding it and taking advantage of it. So the probability is just the probability, but the probability is that a lot of the people who are theoretically entitled to this credit are not taking this credit. Period. Yeah. Easy as they don't know about it. They look at the form and they can't find it and they say, oh, I guess we don't have it. So why would they care about it, Tom? I mean, is it a lot of money? Is it going to save their bank in this credit? Well, I mean, I don't think that's the point here. The point here is that our legislature and its collective wisdom said, we want to give this to our people, right? And so it's then becomes the duty of the tax office to make it available to the people. And they say, oh, we're making this available, I mean, it's on the form. Well, yeah, if you have, you know, the right kind of coded magnifying glass. But can normal people find this stuff? And I firmly believe that that tax form, they're supposed to be approachable by normal people. Well, I guess the good news is this is the only provision, the only credit, the only tax form that has this problem that all the other tax forms that we use and see and need to know about all those other tax forms are clear as a bell, and they identify exactly what you're supposed to do. Is that the good news? Of course not. I mean, even on that one page that I showed you, there were, you know, eight or nine credits who weren't even identified on the form. And, you know, if you didn't see our spoiler, you might never know. Yes, you can get the schedule, see our instructions, and it's all there. That's another spoiler. And if you are, you know, so resourceful as to know to pull down the instructions for that form, you know, kudos to you and my hats off to you. But if, but then the question becomes, well, is this form approachable by normal everyday people at whom the credit is directed? It's been a lot of criticism level that Hawaii government, which is huge and some people say very bloated. But I think one thing has been demonstrated over the years to me is that it's not a sense of service. You know, like for example, we did a show involving Helsinki. I know that's a long way from where you wanted to go on this show. But Helsinki and they call Helsinki the city as a service. In other words, everything that happens in that city is dedicated to public service. They see every inhabitant as a customer, as a client, as somebody they need to service and make them feel good. But this sort of suggests something that I have felt for a long time is that Hawaii government doesn't think that way. It's more adversarial. It's more, I don't care how you feel. I don't care if you feel that government is serving you or not. I'm doing it the way I like it, not the way you like it. Is there is there a some element to that here and in what you've been describing? Well, I know that there are people in the Department of Tax like there are in the other agency that have the spirit of public service. But that's it's not everybody. Some other people are concerned about wealth G's. There's no realistic left on this form. If I got to put in three columns, as well as the description of the credit. So I don't have enough real estate. I'm going to leave the title of the credit out. So why is this? And help me understand why we are having this conversation. Why is this so difficult? Is there no one in a position of creative authority in the tax office who would understand what you're saying? No one who would come at this problem and try to solve the problem on behalf of the taxpayer? Is there no one who is able to or trained to write a tax form that you can understand? Well, I'm sure there are. But for whatever reason, the form that we have now is not approachable by the people who are designed to service. And, you know, it really kind of got me. This this topic for me got started from a letter to the editor that somebody wrote to the star advertiser. And they said, you know, we've been trying to claim the income tax credit, but we can't find it. And I go, really? And I traced through it. And I go, well, yeah, I guess I can see why you can't find it. And that that's why I decided to come up with this topic. Because, you know, like, you know, people across the state right now, including many of your listeners, are probably wrestling with your with their tax forms, federal and state, even as we speak. So this is something that they really ought to be mindful of. And this might even help them. Well, suppose you are right about this. And suppose the government agreed with you. And the government said, gee, if we're going to try to help people, we ought to actually make it make it easy for them to apply for and get these benefits that we have adopted in the legislature, who would do that? Would it be the governor? Would it be the legislature? Would it be the tax office? Who who would step forward and say, wait a minute, you know, Tom is right. We have to correct this and we have to make it, you know, we have to democratize it, so to speak, we have to make it easy to understand, easy to fill out these forms, not only for this particular credit for all the credits, and not only for the credits, but filling out the tax return in general. A lot of people just have a lot of trouble with these tax returns. Why not make it easier? And who is the person who would step forward and say and say that adopt that? For example, if I'm running for office, this is an interesting question for you, Tom. I'm running for office. And I'm looking for platform points. Why not take this as a platform point? Would this work politically? Well, I think that, you know, a lot of the what we're talking about today is, you know, really kind of deepen the weeds for platform points. These are like, you know, litty gritty details that are supposed to be worked out at the at the executive agency level. So really, the people who are most equipped and best positioned to deal with this are those of the Department of Taxation. So they create the forms, they rewrite them, they can make the changes that are necessary. If the problem is we don't have enough real estate to put the descriptions of the credits, I say, you know, get rid of some of those damn columns that you don't need and put at least the credit titles in there so people know what the hell they're talking about. And then they know what the heck they're filling in. I have a very important question for you about this. So most of our lives when we are interacting with you know, other people and organizations applying for things, for example, we go online. Okay, and you and I know that some online systems, you know, forms and the like, wizards, if you will, are easy to fill out and some are not. But why don't we have tax returns that are completely online, like wizards? So it takes you logically through the system, through the maze of possibilities, and it helps you make those choices. It's like any good programmer would do. Why don't we have that? Wouldn't that be a tremendous public benefit if people are going to engage with the government? I know that, you know, in the case of people who don't have any money, they don't have any computers, but you could do it on your phone too. And everybody has a phone. Why don't we spend some time and thinking about how to make this really easy on a systematic, logical basis on some online platform? Well, to answer your first question, you know, that's already been licked. Okay. Okay. There are software companies that put out online filing, you log into the site, you answer the questions that the program interviews you with and, you know, opops, tax return. Okay, several companies do that. And they're competing with each other in the marketplace. IRS has put out something called free file, which can be used by lower income taxpayers. Those are more simple returns. But, you know, software like that already is available. Do we have that in a way? I don't think so. And that's, you know, perhaps something we ought to invest in. Now, investing in a project like that takes, you know, a couple of things. Number one, takes initiative. Number two, it takes resources. Okay. Which means that the government, you know, has to say, okay, this amount of tax money is going to be given to the department of taxation to enhance this system or that system. Now, politically speaking, it's way easier for politicians to, you know, defund the tax collector. They've been doing it for years. Some of them, you know, find it fun to do that, I think. And that I think is one reason why both the IRS and in my view, the Hawaii Department of Taxation has got a lot of, you know, a lot of the short sticks on the, you know, short straws in the budget bundle. And that's not going to change soon. I remember Neil Abercrombie's big tear was that he wanted to upgrade the state computer system. And he promised us that he would do that and in short order. And he brought in this guy from the federal government, by the Sony by Wally, and the, that part of the federal government that deals with logistics. And the guy came out here and formed a team of public-private partnership to fund at least part of his cost. And he spent two or three years examining the state computer system. And in the end, he wrote this huge, big report that said the state computer system is way behind the curve. So that was, you know, something we already knew. And then he left. And what troubled me about that is that that's the state computer system. That's among the agencies of the state. You know, I'm not sure exactly what he was doing or writing his report about, but I don't think that he was just one state computer system. That's part of the problem. You know, that's right. That's what he was doing. He was trying to bring them all together. No, they don't. And they're all archaic. And, you know, and they're failing. And, you know, they're not supported anymore, either hardware or software. But my point, though, is that he was addressing, and Abercrombie was addressing, the state computer system, how the state engages and operates. I don't think it was covering this kind of thing, how the state engages and operates with the citizens, with the taxpayers. Yes. And that's, that's very, very important as well. Yeah. Well, we only have a minute more. And I would like to return to something that I was asking you about at the very beginning. And that's this. We have a lot of poor people that we really need to take care of. And there are many, many things that make them poor and keep them poor. And some parts of the state government are dedicated to that. And I guess, clearly, are we addressing this properly to say, well, let's give them a tax credit. But there are so many other things we could and should do to alleviate the poverty. And I mentioned earlier, housing, for example, is critical. We're way behind in housing, even for the middle middle class. But we're even further behind in housing for the disadvantaged. And rents are too high. They're out on the street. They're homeless. This is travesty. It's a shame. It's a public shame. So, you know, if you go back down the route here, and you look at the reasons for this particular credit in the beginning, I mean, either federal or state, it's got to be there's a lot of poor people who shouldn't be paying as much tax as the rest of us. And I'm thinking, you know, if you look at the social problem underlying that phenomenon, it's not necessarily a tax problem or a tax solution. It's a community problem. It's an economic problem. It's a societal problem. Thank you. And the government can be many things to many people, but it can't solve everything. It can help. If agencies are properly focused on doing the right things, one of the organizational problems that I think we need to be wary of is giving an agency too broad of a mandate or stretching it beyond its competency level, which when you start getting those credits proliferating, you are stretching, you know, de-attacks its competency. I agree. And I agree with you that, you know, we cannot have the Department of Taxation take, you know, organize a comprehensive solution here. It's not in their wheelhouse. That has to come from somewhere else. We need overarching, may I use the term critical thinking, and to develop public policy and coordinated efforts by all branches of state government. So if I say to all the branches of state government, look, we've got a poverty problem here. Think of something. And then you let me know. And then we'll do it in order to achieve a comprehensive plan. I don't think we've done that, but it strikes me that you can't do it at the agency level and expect it to be comprehensive. It has to be at the gubernatorial level. Don't you agree? I agree. And that's why they had a governor's housing coordinator. That gentleman who used to be with Focused is leading that now. He's kind of been shaking the trees for the three, four years now. But hopefully, you know, they've accomplished something and that would be sure of what. But hopefully they're getting more coordinated. Well, this tax credit should be easier to find and obtain. We've examined how it might be improved. And we have agreed that there's a lot of poor people in the state that need to be helped in ways that are meaningful and sustainable. We've agreed that that takes leadership. We've also agreed that, well, we haven't discussed this, but I think you will agree with me is that if we don't take care of them, the quality of life of everyone in the state is affected. Nobody wants those blue tents out there. Nobody wants the homeless. Working homeless is the worst of all where they work and scrimp and save, and they still can't afford the cost of occupancy. So we have these, you know, serious societal problems. And I hope that comes up as a platform point somewhere along the line. Well, thank you, Tom. Always fun to talk. You're always stimulating, actually. You know, it's either stimulating or disturbing or both. Usually both. Thank you for calling me a disturbing person at the start of the show. It's a compliment, Tom. Don't you know? I'm Yama Chika, president of the Tax Foundation of Hawaii. We always enjoy our discussions and we learn so much. Thank you, Tom. Thank you for having me on this show.