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Falling Short of Expectations

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By Lowell L. Kalapa

Since the report of the Economic Revitalization Task Force was released several weeks ago, we have received numerous requests for an evaluation of the report. However, because there is a dearth of information about the actual details, it would be irresponsible to make a detailed analysis of the recommendations.

What information that has been disseminated thus far amounts to little more than a press release and a couple of tables of proposed rates and what the shift in tax burden will look like for a family of four. While there are certainly some elements about the tax proposal that can be commented upon, determining whether or not the proposal will reduce the tax burden sufficiently to benefit Hawaii’s economy is still premature. This is largely because there is a lack of specifics about the pyramiding solutions proposed by the Task Force and therefore the net effect of raising the general excise tax rate.

One aspect that certainly should concern Hawaii taxpayers is the estimated amount of tax relief the Task Force is proposing. Under the Task Force proposal, Hawaii residents are expected to receive a $100 million reduction in taxes in the first year rising to $300 million in the third year of the plan. While one shouldn’t look a gift horse in the mouth, one wonders whether or not this reduction is sufficient to effect the right-sizing of government that we all have come to acknowledge.

A few weeks back, we looked at what government spending represented as a slice of the economic pie called Gross State Product. At that time we learned that state government spending has been out distancing the average slice state spending represented of GSP for the last 20 years by nearly three percentage points or about $1 billion over and beyond that average. Thus, a $100 million tax cut and therefore concurrently, a $100 million cut in state spending falls significantly short of where state government should be. That being the case, then the Task Force recommendations fail to address the very issue of what ails our state economy – an over-sized government that the people of Hawaii are unable to afford.

Some proponents argue that “something” is better than “nothing.” Well, “something” that only applies a “band-aid” to a cancer is not going to cure the patient. Other proponents argue that this is a “window of opportunity” after years of nothing being done. Well, yes, this is a window of opportunity for taxpayers to demand that lawmakers reduce the heavy burden of taxes, but if it means falling from fourth highest to seventh highest in per capita tax burden, that is an opportunity to be missed.

Was the compromising so great among those on the task force that they lost sight of the fact that state government has been living off the backs of taxpayers much too long and that it has broken the backbone of the economy? And despite some of the charges that have been levied thus far, there is not a person who does not want our state’s economy to get going again for we are all hurting.

The problem is that settling for a mere $100 million tax cut which involves raising the general excise tax to reach that goal is an insult to residents, especially the working middle class and the poor. For it is those categories of taxpayers that the plan seems to overlook. For example, the net income tax cuts – while lowering rates – continue to impose the maximum tax rate at very low income levels such that the mechanic is paying the same tax rate as the head of a multi-million dollar corporation.

On the general excise tax side, while the pyramiding of the tax is somehow addressed, it appears that the higher rate of 5.35% merely pushes the cost forward to the final consumer such that the net effect is that the actual amount spent by that consumer would be about the same, leaving the cost of living still quite high.

In fact, it is interesting to note that while the Task Force had the benefit of public input through five working groups that involved more than 150 people, it seemed to have ignored the fact that three out of the five working groups recommended that state government be down-sized. There is no doubt in any taxpayer’s mind that the size of government is at the very heart of why it is so costly to live in Hawaii.

Finally, what is most disturbing is the way the proposal is being sold. There appears very little room for debate let alone dissent! It is a take it or leave it deal even though various parts of the tax proposal beg for improvement.

As long as the details are not released, the proposal will continue to elicit doubts and cynicism.

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