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Action Needed to Right the Economic Ship

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By Lowell L. Kalapa

A major disappointment of the recently adjourned legislative session is that lawmakers again failed to address the overall business climate in Hawaii.

Although lawmakers will proudly parade their successes in the area of same sex marriage and the reform of the “high three” for elected officials, there will be very little to show that Hawaii is a better place in which to do business. One of the few bills that will have a broad base impact is the measure that will reduce the pyramiding of the general excise tax on real property leases.

Aside from that measure, may of the other tax incentive bills are focused on specific types of activities or a specific group of taxpayers such as the deferral of general excise tax liability for businesses on Kauai. While lawmakers will argue that these tax incentive proposals will stimulate the economy, create jobs, and put new money into the system, the fact is that for all other taxpayers the overly burdensome system will continue to make Hawaii a difficult place to survive let alone make a profit.

What is disturbing is that while policymakers acknowledge that it will be a long time before Hawaii pulls out of this economic slump, very little has been done to put together a comprehensive plan to address the complaints about the business and tax climate. For example, the administration’s tax and economic stimulus package this year consisted of gimmicks that targeted certain types of activities or taxpayers. These included the hotel renovation tax credit, which lawmakers approved, as well as the tax deferral for Kauai and Molokai, tax credits for first time buyers of affordable housing, a special deduction for long-term care expenses and a tax credit that would relieve some of the taxpayers at the lower end of the current income tax brackets.

It is not like the problem of the state tax system are a deep dark secret. After all, there have been three constitutionally mandated reviews of the tax system. These reviews all repeatedly pointed to the same problems that need attention. These include a reduction of the net income tax burden on individuals and the reduction of the pyramiding effect of the general excise tax.

While two of these reviews occurred when the state was awash in surplus funds, elected officials refused to make any of the recommended changes and instead found ways to either spend the surplus funds or give taxpayers a one-time rebate. Part of their reasoning was based on the argument that to make any of those changes permanent may jeopardize future revenues.

Well, the future is here and what everyone realizes is that it is the economy that makes all the difference in the world of tax collections. If the economy is not vibrant and thriving, Hawaii’s tax system is not going to produce the needed revenues. The even more difficult lesson that taxpayers have learned is that Hawaii’s tax system in a poor economy creates even more drag on the economy, preempting any possibility of turning the economy around.

If taxpayers are tired of slugging it out trying to survive in Hawaii, it is time that they ask, no, make that demand that their elected officials begin now to work on a comprehensive plan to reduce taxes and even more importantly to reduce regulations that make it difficult to survive in Hawaii. If Hawaii goes another legislative session without that kind of tax relief, we, as taxpayers, are all doomed to become a “third-world” state.

Although it seems lawmakers just can’t bring themselves to adopt tax measures that will mean that there will be less of those dollars they like spending, what they need to realize is that if nothing is done to improve the business and tax climate, there just won’t be any of those tax dollars, period. As Hawaii’s laws drive more and more businesses out of the state, who will be left to pay those taxes?

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