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Zero in on Real Problem with State Revenues

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By Lowell L. Kalapa

Administration officials again are trying to make taxpayers believe that the shortfall in tax revenues is all the result of the tremendous tax cuts that elected officials “gifted” to the people of the state; that in fact if taxes had not been cut, the state would be rolling in surpluses.

If taxpayers believe that story, there is a bridge in Brooklyn that is for sale. Let’s stop and remember where Hawaii is at this time. The Fiftieth state is in the longest economic downturn in its short forty year history. Some would like to believe that this economic doldrum is a result of the Asian economies and the plight they now face.

But what does that say about the economy on the other side of the pond? Why is it that Hawaii is the only state that has not enjoyed the economic exuberance reflected in the American equities market? Why is it the only state where construction has gone down instead of up? Is Hawaii not a part of the American economy?

As elected officials faced the ballot box before the last election realizing that nothing had been done to address the ailing economy, task forces were formed, and lo and behold it was declared that taxes were too high. Indeed, once adopted, the tax reduction efforts of the 1998 legislative session were touted as the “largest tax cut in the history of the state.” Of course, no one paid attention to the fact that it has been the only tax reduction since Hawaii became a state.

Nor do people remember that the high burden of taxes was considered a major stumbling block to attracting new businesses and new investments to Hawaii. So elected officials really had no alternative but to lower taxes. It either was lower taxes or insure that Hawaii would continue to stumble along in this economic mess.

So should taxpayers be grateful and understanding that tax revenues are not growing by leaps and bounds and therefore the state will not have as much money to spend? Or have taxpayers put the bigger picture together and realize that tax collections are making the adjustment to a slower pace of growth as a result of the much needed reduction of tax rates?

What is disconcerting is the hype about the fact that tax revenues are not coming in fast enough to meet the spending obligations of the state. Instead of recognizing that Hawaii taxpayers were literally paying more in taxes than they could afford and therefore a tax reduction is necessary if the economy and taxpayers are to prosper, the emphasis seems to be misplaced on the fact that the state might not have a surplus at the end of the next fiscal period. Or even worse, the state might be in a deficit situation as a result of lower tax collections.

It makes one wonder if all of this rhetoric is really to set up taxpayers for an increase in taxes during the next session. With the unenviable prospect of possibly putting the state into a deficit or near deficit position, will there be pressure to come up with new sources of revenues? Will constituents be led into believing that certain programs are critical to the health and welfare of the community and therefore must be funded?

Before elected officials mislead the taxpayers down the primrose path, taxpayers should remember that the real problem all along has been that there has been very little control over spending. For years, elected officials spent tax dollars like there was no tomorrow. And as long as the economy was doing ok, they could get away with it. Now that the exuberant post-statehood economy has matured, every item affecting the bottom line is being scrutinized. Be it taxes or the hidden burden of government regulation, all of government weighs heavily on businesses and individuals in Hawaii.

While public officials may want to convince taxpayers that the financial crisis looming over the horizon for state government is a product of the tax cuts enacted in the past two legislative sessions, they should be more forthright and admit that similar cuts to spending have not been made. It is this lack of truly reducing the size of state government that is threatening the fiscal outlook for the state.

Unless, spending can be brought into line with the anticipated tax revenues, Hawaii will indeed be faced with the possibility of tides of red ink. Responding to this crisis with proposals that taxes be increased or fees be hiked is irresponsible and merely negates the tax cuts.

The rhetoric is only beginning to heat up about how public programs are being slashed. Will taxpayers be astute enough to see through the smoke and hold their elected officials to their word to reduce the size of government? Only time will tell if elected officials will call for tax increases in the next session of the legislature.

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