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Helping the Economy Takes More Than Tax Reduction

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By Lowell L. Kalapa

With the legislative record just about wrapped up with lawmakers’ efforts awaiting the final approval of the governor, it is time to take inventory of just how well taxpayers did this year.

Although giving a grade to the legislature is a futile effort as they may have failed in some areas and succeeded in others, assessing the record of not only the legislature but the administration is worth the time and effort. Certainly taxes will be one area of focus and while some may be disappointed that tax reform did not succeed, the exercise of reviewing the tax system did contribute to the discussion of just where Hawaii has to improve its efforts in order to survive economically into the 21st Century.

As the session progressed and the tax discussion got more heated, it became increasingly apparent that taxes, by no means, are the key stumbling block to economic vibrancy in Hawaii. No, indeed! What became quite apparent is that the hidden tax of government regulation far out distances the cost of taxes.

Taxes seemed to capture the spotlight and therefore became the obvious scapegoat for the politicians as to what is wrong with Hawaii’s business climate. They even convinced astute business leaders that it is taxes that drive businesses out of business in Hawaii and cause people to declare bankruptcy. However, because government regulations are numerous and peculiar to each type of activity, the public cannot put its collective finger on the problem.

However, when one inquires with those who are struggling to stay in business, the two major complaints heard is the general excise tax is a real burden because it takes its due without recognizing that a business is not profitable and second, the amount of government regulation with which businesses must contend. Be it labor regulations, health regulations, registration regulations, or whatever, the cost of complying with the regulations from the paperwork to the added cost of installing required equipment eats up not only time but the money of businesses.

One business owner actually took a tally of how much time his workers spent on complying with federal, state and local regulations and he found that his workers spend about as much time complying with government edicts as they did doing their jobs. Perhaps to public bureaucrats, time is not a factor as the workday is a neat eight-thirty to four-thirty stint. But to businesses, every minute lost is one less minute of productivity and therefore that many less goods or services produced.

The lost minute, and therefore the lost productivity, means that the business has less goods or services to sell. If there are less goods and services to sell, the business earns less income. Less income means less capital for jobs, less capital for expansion, and less, if any profit at all. Without profits, a business cannot continue.

While this seems all too simplistic, believe it or not there are some lawmakers who still believe that businesses who make profits are merely “ripping-off” their constituents. The reaction to this has over the years built up a tome of regulations to “protect” the constituents of lawmakers. It has built up a reason for bureaucrats to argue that those regulations should not be repealed much as they did this year.

If lawmakers and the administration, as well as the business community, are truly interested in “economic revitalization” then they need to start looking at how government regulations make Hawaii such a draconian place to do business. Oh, yes, one should also remember that those regulations need to be enforced. If they need to be enforced, then government needs employees to enforce them. Perhaps that’s why it has been so difficult to “right-size” government.

While taxpayers may be disappointed that taxes were not reduced substantially this year, they should remember that taxes are not the only reason that Hawaii is a poor place to do business. In the meantime, hopefully, public officials will take a deep hard look at some of those protective regulations.

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