Are Hawaii's Tech Tax Credit Worth the Cost?

Comment

Comment by Bruce M. Bird on April 22, 2009 at 4:32am

Article on proposed changes to Act 221 is in today's Honolulu Advertiser at: http://www.honoluluadvertiser.com/article/20090422/BUSINESS/904220364/1071.

Bill Spencer is quoted in it. Also, Pono Chong.

Comment by Bruce M. Bird on April 18, 2009 at 9:59am

An opinion piece by Jay Fidell that mentions Act 221 appeared in last Sunday's Honolulu Advertiser. It can be accessed at: http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=2009904120336 .

Comment by GB Hajim on April 14, 2009 at 6:01pm

Shoots, if he backs off Act 221 I have 6 Macs I can donate in 2010.

Comment by Bruce M. Bird on April 14, 2009 at 1:27pm

Hi, Bill. Pono Chong may be "anti-221", but he is "pro-computer" when it's "for the kids".

See http://www.ponochong.com/pc_program.htm . ("If you are interested in donating a working PC or Mac with a minimum power of a Pentium II, please email me at: ponochong@yahoo.com ").

Comment by Bruce M. Bird on April 14, 2009 at 10:45am

Hi, John. You wrote: "...the point is that 'bad' risks increase when other people absorb the costs."

Should I assume that the unnamed but "well established principle of economics" to which you refer is... "moral hazard"? If so, please note that it is sometimes defined as "the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk".

Moral hazard doesn't mean that all people will behave differently. It just means that some people may behave differently. For example, even though I have theft insurance on my car with a $0 deductible, I still lock up my car when I go to the beach. However, some of the people who have the same insurance on their cars don't lock up their cars when they go to the beach.

Your statement that " 'bad' risks increase when other people absorb the costs" is, in my opinion, a bit harsh.
When I attended graduate school, I had a scholarship and also several small student loans. Other people "absorbed" most of the cost of my education. Now, I could have taken my student loan money, travelled to Lost Wages, Nevada, and gambled it all away. Had I done so, I would agree with your statement that " 'bad' risks increase when other people absorb the costs". However, I used the money I borrowed to help pay for my living expenses. Even though "other people" absorbed most of the cost of my education, my borrowing money from the federal government (and receiving a subsidized education from the state) arguably did not "cause" a "bad" risk to occur.

In any event, I agree with you that the issue of moral hazard can occur in a number of contexts.

Comment by Bill Spencer on April 13, 2009 at 9:24pm

Pono Chong, one of the anti 221 legislators, has been quoted as saying that he is against 221 because "it will create high paying jobs which will in turn drive up the cost of housing" beyond the reach of the average Hawaiian. So better we keep our kids under-educated, pregnant, surfing and preparing to fold napkins for a living so that they and their extended families can all live happily together in an affordable house.

Comment by GB Hajim on April 13, 2009 at 8:19pm

I hate to knock a guy....but "when third parties absorb costs is not simply an association but a well established principle of economics." This IS the principle of our well established economics- that profit is privatized and debt is socialized. It is how our whole economic system functions. If you want to talk about revamping our economic system to limit the profit motive (ie the greater the risk, the higher the margin of profit), cap wages and remuneration, eliminate the central banking system, FDIC, the Treasury, axe the GAO, by all means, start lobbying away. Bill and I live in the here and now.

Tax credits, international government bonds, international government grants and VC high risk capital make up over three quarters of an average Hollywood film project's funding. 70% of Lara Croft: Tomb Raider's budget came from government bonds and tax credits. The studio put up less than 20% of this tent pole film (tent pole meaning an easy sell, easy profit). Us that work in the indie world have to compete with that and have no shot at a tent pole film. (Securing rights to established properties is way too high)

John, I'm all for a world where fairness prevails: Where the best and brightest are awarded for being innovative and prudent, but that is not the world we are in. We need aggressive support in the form of tax credits, better educational system, and the return of the socialized medical system Hawaii used to have to be competitive. Otherwise start learning to fold napkins super well because hotel service jobs will be the only thing happening here. Many of our government representatives critical of Act 221 say that we should pour that money into our Tourism sector.

BTW To push our example - to date we have raised $3 of our budget from the mainland for every $1 of Hawaii tax credit being claimed.

I feel like I'm going to have to ho'oponopono with John in the near future.

Comment by Bill Spencer on April 13, 2009 at 7:44pm

So John, according to your anlaysis then, any start up using OPM (other people's money) where "third parties absorb costs" increases bad risk taking behavior? It would follow then, that unless an entrepreneur can write themself a check and fund a business themself, they should just forget about the venture finance continuum otherwise they would succumb to the temptations of risky behavior, fraud and abuse. Gosh, living in a capitalistic technology driven society is just too risky. I guess we should all go back to subsistence living where the only risk is getting hit on the head with a coconut or struck by lightening while hunting and gathering. Sorry for the scarcasm John, but I think you've take the "woebegone effect" a little too far.

Comment by John on April 13, 2009 at 6:06pm

Hi Bruce, the point is that 'bad' risks increase when other people absorb the costs.

It can be WebVan, when Bubble investors foolishly threw money; it can be teenagers when they realize their parents will cover damages they create; it can be investment banks when they realize that the federal government will bail them out; or it can be tech start-ups when investment money gets huge tax credits.

That 'bad' risk increase when third parties absorb costs is not simply an association but a well established principle of economics.

Comment by Bruce M. Bird on April 13, 2009 at 3:57am

Hi, John. I take from your earlier posts that you've worked for an Act 221 company and that this company took on more risk than you felt appropriate. I know of many cases where a non-Act 221 company took on more risk than I felt appropriate. In fact, I know of some cases where I've looked at a company's business model and thought "this doesn't make a whole lot of sense" (for example, WebVan). My point is simply that association does not necessarily mean causation.

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