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Pardon Me, But Where is the Money?

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By Lowell L. Kalapa

The 2001 legislation session is underway and there is no doubt that it will be sixty working days filled with controversy and “miracles.”
Miracles? Well that is what it will take if everything that lawmakers have floated as ideas materializes and actually comes to pass. Having gone from famine to feast, lawmakers believe that the well must be bottomless. From agreeing early on to fund public employee raises, they now seem to be jumping on board the tax cut wagon.
From further income tax cuts, to accelerating the ones already in place, lawmakers seem desperate to set a record, or at least make one by pandering to the politically correct. Now that the Republicans seem to have put the Democrats on the spot with their long standing bid to exempt the sale of food and medical services from the general excise tax, it appears that a number of lawmakers surveyed will, or at least they say they will, support the proposal once the session gets underway.
Of course, no one seems to be concerned about just where lawmakers are going to find all of this money. Funding public employee pay raises, adding money for education across the board including the university, doing away with the tax on food and medical purchases, and providing other tax incentives will drain state coffers of millions of dollars – millions of dollars that may not materialize as much of the speculation is based on forecasts of state tax revenues.
While the state Council on Revenues put an optimistic shine on their forecast of tax revenues late last year, some observers of the economy have since decided to pull in their rosy shades as a result of events happening on both sides of the Pacific Rim. If the national economy slides, as some national observers are predicting, it could have an impact on westbound visitors. On the other hand, many believe that the Japanese economy is experiencing another relapse. The Japanese yen is losing value against the dollar which in turn will have an impact on eastbound visitors.
As a result, the glowing forecasts of a few months ago may take a dark downturn should the economic conditions affect the visitor market in the near future. What forecasters and lawmakers hope for may not materialize, that is, a glowing tax revenue picture.
The long and short of it is that before elected officials promise a “chicken in every pot,” they need to exercise fiscal prudence and use what resources are available wisely. This means setting priorities for taxpayer dollars. For taxpayers, it means knowing that lawmakers will not be able to deliver on all the promises they make here at the beginning of the session. For example, the governor has already warned that Felix-related expenses will be going up in order to meet the consent decree requirements.
And while tax cuts would be welcomed, taxpayers also need to remember that if lawmakers don’t make similar cuts to state spending, the tax cuts will simply migrate to tax or fee increases in other places. For example, the Republicans will push to eliminate the 4% tax on food and medical services. The loss of revenues could range anywhere from $100 million to $160 million. If similar reductions are not made in state expenditures will lawmakers merely raise the tax rate to 5% or 6%? Or will fees for school lunches go up again?
As has been said many times before, the problem with government is not whether there are sufficient revenues, the problem is the spending. Until that spending is controlled, meaningful tax cuts cannot be accomplished. And until the tax burden is eased, the economy will continue to struggle with the high burden of taxes and regulation in Hawaii.
So a difficult path lies ahead. Much of the struggle of this year’s session will be rooted in the finances of the state. The question is whether or not taxpayers will get a cut or a hike in their tax burden. What is remarkable is how short the legislative memory is. Just a few short years ago, tax cuts were the mantra of legislators as they struggled to figure a way out of the economic quagmire.
Today, flush with cash, they want to spend the money but they also want to not offend taxpayers by jumping on the tax cut bandwagon. Hold on to your wallets! The legislature is back in session!

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