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Tax Reduction Crucial to Revitalizing Economy

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By Lowell L. Kalapa

In the closing days and hours of this year’s legislative session, the tug-of-war lawmakers struggled with day after day was whether or not to take the gamble and enact some of the tax reductions and tax incentives that have been on the table since the beginning of session.

While the media hyped the issue of the economy, those who are dependent on government spending pulled in the other direction. In the end, the issue boiled down to money – if taxes were cut there wouldn’t be enough money to fund the public employee pay raises and the numerous other demands.

While readers may think that this decision is a “no-brainer,” that taxes need to be and should be reduced, for lawmakers that decision was not without its downside. Remembering that the number one goal for all elected officials is that they should do everything possible to get reelected in two or four years, the thought of offending one of the largest organized groups of voters makes those officials tremble.

What it came down to was whether or not lawmakers were going to cut taxes or take care of workers. If taxes are cut and there is less revenue, then lawmakers have one of two alternatives – either raise other taxes or cut spending. It became abundantly clear that cutting spending was not going to be easy as lawmakers found ways to juggle the books, dip into other resources and eliminate vacant positions. Clearly, lawmakers did not want to offend workers and their union representatives.

What is unfortunate is that there was no leadership in bringing all parties to the table. No one is willing to take the risk to explain to labor that if nothing is done to improve the business climate in Hawaii, the state’s economy will continue to slip into the big black hole. Instead, elected officials resorted to squirming, looking for ways to fund every program and position.

What seems to have been lost on everyone feeding at the public trough is that unless the economy improves, there will be no more new tax revenues. If taxes are not reduced, the cost of making goods and providing services in the islands will continue to be very high and therefore uncompetitive with providers of goods and services from other parts of the country or the world. The cost of those goods and services suffer not only from high taxes but the cost of complying with government regulations.

Thus, while union leaders decry cuts in taxes and abhor the possibility that regulations which are supposed to protect workers might be modified or repealed, the very lifeline which produces the tax revenues that go to pay public employees is being jeopardized. Perhaps there is a mistaken belief that if these businesses here today don’t like the tax and regulatory atmosphere, someone else will come.

Some political leaders would like us to believe that this economic slump is just a “temporary” occurrence resulting from the slump in the Asian economy and Hawaii is still a good place to do business. If that is the case, then why hasn’t the economic exuberance occurring on the mainland spilled over into Hawaii? In other words, if Hawaii is such a great place to do business, then why haven’t the cash rich investors on Wall Street sunk some of that capital into Hawaii?

Although there are some business groups that would like to have “that man behind the tree” bear the burden of taxes, mainstream businesses, both big and small, recognize that there must be a balance of a rational level of taxation to provide the public services needed by the community and an acceptable level of taxation that will allow businesses to flourish and create the jobs that Hawaii’s people need.

Just as much as the public employee unions represent one extreme, some businesses who demand to be totally tax exempt represent the other extreme. No one wants to pay taxes, but if the community requires certain public services, taxes are a necessary evil. The question is how much is really necessary to provide basic core services and how much is too much. Obviously, Hawaii labors under an extraordinary burden of taxes that has pushed the economy into a slump.

But if taxes are to be reduced, it also means that the expenditures that demand those tax dollars must also be reduced. If lawmakers are not willing to reduce the tax and regulatory burden, then they must accept the responsibility for sending Hawaii into economic oblivion.

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