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Growing a Better Business and Tax Climate

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By Lowell L. Kalapa

During this past legislative session, lawmakers struggled to find ways to “stimulate the economy” in the aftermath of not only a decade long slump but the chilling effects of September 11th.
Try as they might, the sum total of the product produced by this year’s session of the legislature actually did more harm than good for the economic well-being of our state. Regulation of the price of fuel and health insurance costs sends a message that investors should not bring their money to Hawaii or they face the possibility that the state government might tell them how much they can charge for their products or services.
And legislators adopted a bottle bill in the name of preserving and protecting the environment while totally ignoring the fact that it will raise the high cost of living and doing business in Hawaii even more. It is a reflection of the fact that lawmakers do not understand what it takes to do business in this state. It is obvious that they do not understand the cost of overhead, payroll, and site. It is also a reflection of the fact that they are not willing to listen to businesses despite their pronouncements that they are working to help improve the business climate.
Instead lawmakers are more than willing to resort to gimmicks that they think will impress voters and make them believe that they are doing something to help businesses. They are more than willing to give away 100% tax credits that will cost the state treasury $75 million to build a world class aquarium for a specific resort area. Then there are those tax credits for commercial construction that can only be had if the project is built where union wages are paid. And don’t forget the tax credits to reward health care facilities which provide Medicaid health services.
And who do they think will pay for these tax credits? It is almost as if lawmakers think this is free money that is going to materialize out of the air. No, they aren’t quite oblivious to the fact that these tax credits forced them to rework the financial plan because it will mean that there won’t be enough money to balance the budget. But it seems that they don’t recognize that what money they will need to fund the spending plan for the next year will come from all other taxpayers who can’t take advantage of the gimmick tax credits.
Because lawmakers were not willing to cut spending they skipped the taxpayer. Instead of providing relief to taxpayers in Hawaii, who are ranked as some of the most overburdened in the nation, lawmakers chose to keep the heat under taxpayers by refusing to cut taxes or provide relief for taxpayers across the board.
This is the point that lawmakers miss. By approving targeted tax credits that favor only a handful of taxpayers, all other taxpayers have to pick up the slack which in this case means that there is no prospect for reducing the overall tax burden in Hawaii.
So unless you are in the construction business or building a new hotel or you are in the high tech business, forget about getting relief from the tax burden in Hawaii. And what about potential investors in Hawaii? Once they see that lawmakers are willing to provide tax breaks to entice new industries or new activities, they will hold out in a “me too” strategy. If Hawaii can give away tax credits for high technology and film making, why can’t it give tax credits to attract some other industry du jour?
It is time for lawmakers and the business community alike to return the tax system to one of fairness and simplicity. Treating everyone the same across the board can potentially allow lawmakers to make across-the- board reductions in the state tax burden. A lower tax burden can have just as much, if not more, of an impact on stimulating activity and creating jobs in the state.
A lower tax burden promises potential investors that they might just be able to make a decent return on investment and that putting those investment dollars in Hawaii makes good sense. For those businesses already invested in Hawaii, a lower tax burden means more money with which to expand their current operation, increasing productivity and hiring more people.
Finally, lawmakers need to understand that more regulation means more costs. Having to comply with inane and sometimes redundant regulations merely adds to the cost of living and doing business in Hawaii. That cost has to be recovered from someone and usually it is from the customer who in most cases is the constituent of the elected official. So reducing the cost of regulation is also key to creating a better business climate.
If lawmakers want to stimulate the economy and make this community a better place to live, they might take some time to study what makes the economy healthy rather than resorting to gimmicks like tax credits.

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