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Facing the Reality of a Poor Business Climate

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By Lowell L. Kalapa

Hawaii has gotten national attention, if you haven’t heard! Indeed, Hawaii has hit the BIGTIME as articles appear in the media across the nation.
Such national notoriety might be welcome ordinarily, but in this case, it is criticism about how bad it is to do business in Hawaii. While much of the attention has been focused on the article that recently appeared in Forbes Magazine, there have been other articles in theChicago Tribune and the Investor’s Business Daily. These critical articles have raised the dander of local officials and a rebuttal is being prepared to counter the so-called “innuendos” which officials believe are unfounded.
What is surprising is that the defense is being prepared by supposedly business community advocates. Troubling, to say the least, because one would imagine that local businesses should ask whether or not those observations by the national media are indeed true. And if they are true, what can be done about correcting those perceptions, if not the problems, highlighted in the articles.
So what are the criticisms that local officials want to rebut? Statement: Shipping costs jack up the price of everything from sandals to cereal by 30%. Well, maybe not everything increases in price by 30%, but one cannot ignore the fact that almost everything that residents consume must be shipped into the state, so one can reliably observe that shipping adds to the cost of living in Hawaii.
Statement: Bringing corn feed to the islands is so expensive that the 225,000 acre Parker Ranch raises cattle and ships the animals to Canada for a final fattening and slaughter. Well, it is a well-documented report that Parker ranch does indeed ship its cattle out of state. Whether it is because shipping corn is too expensive or it is a matter of getting the livestock to market, it is still a matter of concern that the cattle is shipped out of state for fattening and slaughter. Obviously, it doesn’t make financial or economic sense to Parker Ranch to slaughter the cattle in the state or else they would do it.
Statement: Hawaii’s personal income tax on its wealthiest citizens (wealthy being defined as $80,000 in annual income) is 8.25%. Well, that is what it says in the Hawaii Revised Statutes. The top tax rate on a joint return begins at $80,000 of taxable income. And, yes, while there are other states with higher nominal tax rates, they also have substantial standard deductions so the top tax rate actually kicks in at a much higher income level because of the higher floor before which the tax is imposed.
Statement: These problems are compounded by the state income tax rate of 6.4% on corporate net income over $100,000. And then there’s the 4% gross receipts tax on all businesses, profitable or not. While the net corporate income tax rate may not be amongst the highest in the nation, the 4% general excise tax certainly has to be the bane of businesses in Hawaii, for it is indeed imposed without regard to a business’ profitability. It takes its due whether or not the goods or services are being sold at a profit.
The article goes on to criticize the raiding of special funds like the hurricane relief fund in order to balance the state budget and points out that the state taxes everything that moves from the dollar-a-pack cigarette tax (which is about to increase again) to the nickel per barrel tax on all petroleum products.
The Chicago Tribune article focuses on the cap on gasoline prices. It notes that the last time price controls were imposed on gasoline was back in the early 1970’s during the Arab oil embargo. And as it accurately recalls, the price controls resulted in spot shortages and long lines at the gas pumps. The article predicts that the newly adopted cap on gasoline prices here in Hawaii will have similar results – instead of making things better for consumers, the article predicts that they will get worse.
Rather than trying to rebut what observers from across the nation are writing about, business leaders, as well as elected officials, should begin to do something about many of the negatives highlighted in these articles. From the over regulation of business in Hawaii to the maze of planning boards and zoning commissions to permits necessary just to install an air-conditioning system, Hawaii has to be one of the worst places to do business.
And, oh yes, someone said, isn’t it great that we have all these high technology tax incentives to encourage the growth of high paying jobs in Hawaii. With the high maximum income tax rates and low-threshold of income, why would any six-figure high technology employee want to work in Hawaii?

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