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Cutting Off Tax Reduction a Possibility

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By Lowell L. Kalapa

Difficult as it may be to believe, there are actually some people around the state capitol who are contemplating the possibility of suspending the phased-in tax reductions adopted by the legislature during the past two years.

It seems that a lot of pressure is being brought to bear to halt the reduction of income tax rates and the phase-in of the de-pyramiding of the general excise tax as a way to avoid cutting state spending and the reduction or elimination of certain state services. However, as one learned observer pointed out, playing “Indian giver” with tax cuts would seriously damage the credibility of state lawmakers and administration officials.

The loss of that credibility would seriously impair the ability of elected officials to lead and would damage whatever faith people have in government. No, it doesn’t seem like lawmakers and administration officials can go back on their actions to reduce the tax burden. On the other hand, that doesn’t prevent them from finding other devious ways to keep the government monster fed.

No doubt there will be continued efforts to levy user fees and charges, to siphon money from legitimate special funds like the highway fund, and to raid endowments that were established for a rainy day. However, all this will accomplish is to defray the day of reckoning as lawmakers will not have dealt with the real problem: a government that is too large for the economy to support.

Instead of making the hard choices when it became apparent that the state had made a shift in its economic engine, state leaders found all kinds of ways to keep the monster fed. Now that it appears that the state’s economy has turned the corner, will it continue to be plagued with a state government it cannot afford to support?

It also appears that many lawmakers are waiting in anticipation for the good old dayswhen there was money to thrown down the drain, and not have to worry about whether or not there was more to be had.

Unfortunately, as one economic observer pointed out in his estimation, not only is the recession over but the economic recovery is also over. What he meant by that is that Hawaii has stopped going downhill, however, slow and measured economic growth is what we must become accustomed to at least for the near future. The days of double-digit economic growth are over and what will happen is slow and steady growth for the next few years barring any unforeseen catastrophe.

Hawaii’s economy has matured and unless there is an unforeseen industry or activity that is looking for a paradise in which to locate, the boom years of statehood are definitely over. That being the case then lawmakers need to adjust their sights to a government that is somewhat smaller and more efficient that the one they inherited from the early part of the 1990’s. This will take a lot of political will that some lawmakers just may not have given the pressures that will be brought to bear by the public employee unions and others who may be at odds with the notion of downsizing government.

However, the consequences of not cutting spending and the size of government will be even more dire that the pain of reducing the public payroll. If government continues to take just as large a share of the economic wealth of the state to keep its fire burning, then there will be nothing left for the economy to reinvest to create the jobs and therefore the economic wealth that Hawaii needs to grow. If the philosophy of the government of the past persists as Hawaii’s economy matures, then the future of Hawaii will remain bleak.

So, yes, denizens of the capitol hallways may want to entertain the idea of suspending tax reductions to avoid cutting government spending, but then it will be like the old saying goes, lawmakers will have cut off their nose to spite their face.

Instead of helping the economy to stay the course, lawmakers and administration officials will insure the economic train is derailed. The 2000 session of the legislature will put elected officials to the test of their political will. At stake not only is the economic well-being of the state, but the well-being of the people in the community. Let the circus begin.

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