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Correction of Economy Begins With Government

posted in: Weekly Commentary 0
By Lowell L. Kalapa

So, we are going to have an economic summit. The question is, will it be the same old ideas and the same old rhetoric that we have been hearing from the administration and lawmakers?

It seems that one of the primary questions that summit participants need to ask before sitting down is whether or not they will be talking about tax reform or tax reduction. Elected officials are proud to point to tax reform as “structural changes” that will improve the economic and business climate. Translated that means let’s shift the burden around so that our constituents get a tax break. After all, they need the votes of their constituents.

For taxpayers, anything that looks like a tax break or tax reduction sounds good. But shifting the tax burden among taxpayers is a favorite past time of elected officials. One of the favorite targets is the visitor, supposedly because visitors don’t vote. Unfortunately, they do vote – in a way – by deciding not to come to Hawaii. The result is that when they don’t come to Hawaii, the one-third share that the visitor industry makes up of the state’s economic base begins to affect all the other sectors.

Thus, shifting the burden from one sector of the economy to another does not accomplish anything as it is the same amount of dollars being taken out of the economy. But this is indeed what lawmakers and administration officials strive for anytime they talk about tax reform, revenue neutrality. Revenue neutrality means that the tax measure won’t lose any money nor will it make any more.

But what is the point of talking about economic revitalization if it does not mean a reduction in the tax burden imposed on the state’s economy? If the state is taking ten dollars out of the economy now and after all of the summit’s exercise, the state will still take ten dollars out of the economy, what good will that do the economy?

No, it seems that one of the major reasons why businesses are closing and people are going into bankruptcy is that they cannot make a profit, that is enough money left over after paying all expenses and taxes so that they can keep the doors open. It is not only the direct taxes paid by the business, it is also the high cost of complying with government regulations as well as the high cost of the goods and services purchased by the business which in turn is affected by the same costs and taxes.

It seems that if the economic summit participants are to make this effort a worthwhile one, they need to start with the question of whether or not their efforts must comply with a “revenue neutral” mandate. If so, then their time would be better spent somewhere else.

The corollary to a reduction in tax burden must then be that government needs to do with less revenues in the meantime. Investing those dollars in the economy through tax reductions means reducing the amount of money flowing into the treasury. If that is the case, then government must either downsize or find more efficient ways of delivering public services.

Such a notion, certainly, will not be popular with those who represent public employees, but let’s face it, if nothing is done to rescue the state’s economy, we will all be looking for somewhere else to live and work and that includes public employees.

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