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Can the Economy Really Be Turning Around?

posted in: Weekly Commentary 0
By Lowell L. Kalapa

As the legislative session gets underway, it appears that lawmakers are shifting their attention away from the issue of the economy and focusing again on social ills that plague our community like a fireworks ban or gun control.

As a result of reports that the economic indicators have bottomed out and are on the rise, lawmakers appear to believe that the economic problems have been solved and the state is on the way to recovery. What they don’t seem to comprehend is that the recovery has happened and that the state – while headed for expansion – will grow ever so slowly over the next few years. What that means is that while it appears the string of negative numbers seems to have come to an end, the positive numbers will be small.

Unfortunately, it appears that some lawmakers think that “recovery” means a return to the high flying days of the late 1980’s and early 1990’s. Should that sentiment prevail throughout the legislature and beyond to the rest of government, the reforms that are critical to “righting” the ship of state may be left behind.

What is even more scary is the fact that public policymakers may believe that government doesn’t need to tighten its belt in anticipation that revenues will return to their former high water marks. If that is the case, then what progress that has been made toward improving the economic outlook will be lost as government will continue to siphon off the capital that is needed to expand and grow the state’s economic base.

While politicians have pleaded that government has already been “cut to the bone,” appropriations approved by last year’s session of the legislature actually increased by 4%. This year, the administration was ready to endorse a spate of tax increases to raise $30 million when the Council on Revenues upped its forecast of tax revenues by a similar amount.

However, the administration is also pushing hikes in the so-called “sin taxes” on liquor and tobacco. In the case of the former, the tax on alcoholic beverages would be bumped up by 12.5% and the proceeds would be earmarked for substance abuse programs within the department of public safety. The rationale for this proposal is that alcohol is one of the substances that is abused and therefore revenues from the tax on this substance should be used to pay for programs to address the abuse problems.

While it may sound logical to use the taxes from the sale of this particular product, why is an increase in the tax rate necessary? Why not take the money that is already being generated from the sales of alcoholic beverages to pay for substance abuse programs? The answer? Officials don’t want to give up (spend) any of the thirty some odd million dollars currently generated by the liquor tax on substance abuse programs. In other words, the administration does not think substance abuse programs are of a high enough priority to spend current tax dollars. They want is to continue to spend those dollars on other programs.

So instead of living and spending within the current means of government, administration officials want to raise more taxes so that they can continue to have more government. Similarly, there will be a great push for making motorists pay for their car insurance through every purchase of fuel they make at the pumps. This “pay-at-the-pump” motor vehicle insurance may look appealing as the proponents argue that this approach will insure that all motorists are covered, it is nothing more than another means to insure that government will continue to grow.

For along with this novel approach to auto insurance will come a state run insurance program that will require a whole host of additional government employees to run the program. That is why some of the public employee unions are endorsing this approach to car insurance. Creating a state run program will insure that there are even more employees on the public payroll.

So if lawmakers think that the economy has turned the corner and that they can return to their free-spending habits, we may all be in trouble. If lawmakers approve tax increases like those proposed for alcoholic beverages and user fee increases for certain public services, they will short-circuit the economic recovery.

While lawmakers failed to approve the increase in the general excise tax proposed by the economic recovery task force a couple of years ago, that increase is taking shape in a new variety of tax and fee increases. Thus, instead of improving the business climate in Hawaii, it will be business as usual and gains that were made with the tax cuts will be lost – and so will taxpayers.

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