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Hurdles to Economic Recovery Largely Political

posted in: Weekly Commentary 0
By Lowell L. Kalapa

     It is interesting to watch the barbs go back and forth upon the close of the legislative session as the blame for the failure to accomplish the <big bang> is liberally passed around.  

 

 

Hawaii cannot afford to allow the politics to get in the way of pursuing the dream of economic vitality and hope for the future.

       Leaders of the Economic Revitalization Task Force would like to put a more positive spin on the outcome by proclaiming that one should look at the glass half full rather than half empty, while bemoaning that “special interests” killed the general excise tax increase and the corporate income tax cuts. No one from that group will admit that the idea of raising the general excise just wasn’t a good idea to begin with and that, in fact, sealed the fate of the package from the beginning.

On the opposite end, those who disagreed with the hike in the general excise tax rate appear to be contented that at the very least the tax increase was stopped. However, thatcontented feeling also seems to obscure the fact that nothing significant was accomplished to re-energize the state’s economy. Sure personal income tax rates were cut so that elected officials can “bring home the bacon” in November, but most observers will agree that the “minuscule” reductions in income tax rates will do little, if anything, to help move the economy forward..

While many will point to the fact that the state budget cuts were insufficient to fund a major tax reduction and they will be right, there were some changes that lawmakers could have adopted that would have cost little, if anything, in revenues that would have improved the business climate in Hawaii. However, because politics and personalities appeared to have gotten in the way, those changes were left on the cutting room floor.

One change that many, including the media, considered a “no-brainer” was the proposal to exempt the sale of services to customers located outside the state. Although it would have provided an exemption from the general excise tax for any service provider who sells to a customer outside the state, the logic held is that the service provider will bring that income into the state which in turn will be spent in the state, creating jobs and providing new economic activity in the state. Thus, rather than losing revenue, the long term effect is that the exemption would have created new tax revenues for the state.

 

 

 

…it should be a ‘no-brainer’ that Hawaii needs new leaders who won’t let the politics get in the way of the good of the community.

       The other advantage to the export services exemption that appears to have been lost on policymakers is that by eliminating the 4% impost on the cost of those services, it would put Hawaii service providers on a much more competitive basis with competing service providers who are located in states that don’t tax services. As it is, the 4% tax means that no matter how much less of a profit a Hawaii service provider takes, that 4% tax will always be due and a part of the bid price.

If this was such a simple idea, why didn’t lawmakers buy into it, especially if it really meant no net loss of revenues and would have meant that the legislature could actually have done something to improve the business climate? Who knows, but some say that when lawmakers refused to consider the hike in the general excise tax rate, all discussion of any change in the general excise tax law was taken off the table.

If that is the case, it is no wonder that voters take a very cynical attitude toward their elected officials. Rather than pursuing what is best for the state and the community at large, elected officials appear to be more interested in their own agendas and playing the game of “one-upmanship” to prove their political prowess.

Hawaii cannot afford to allow the politics to get in the way of pursuing the dream of economic vitality and hope for the future. It is increasingly apparent that those who currently serve find it difficult to adopt even the most obvious solutions, such as the exemption of exported services. Given that conclusion, it should be a “no-brainer” that Hawaii needs new leaders who won’t let the politics get in the way of the good of the community.

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