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Ultimately We All Pay For Lawmakers’ Ignorance

posted in: Weekly Commentary 0
By Lowell L. Kalapa

It is truly amazing that lawmakers continue to swim against the tide of common sense and basic economics and still insist that they are right. Lesson after economic lesson is ignored and lawmakers still insist on ploughing ahead in the same direction.

In the late 1980’s observers cautioned against the drunken spending spree state leaders enjoyed, pointing out that money should be saved for a rainy day, but none of that sunk in at the state capitol. Then when Hawaii’s economic malaise became a reality, lawmakers figured that they could “fix” the economy with a passel of gimmicks called tax credits and tax incentives. Again, state leaders were cautioned that those tax incentives came at a price to all other taxpayers and again those critics were ignored.

Now we have the nightmares of the bottle bill and the gas cap, both of which run counter to good economic sense. And perhaps that is it; the basic lack of knowledge of economics seems to be the key ingredient in all of these fiascos that lawmakers have perpetrated on us as taxpayers. You know such simple theories as the effect of supply and demand, volume versus price, and market competition. Perhaps we should require all lawmakers to go back to school to learn some of these basic principles. 

And despite failure after failure, you would think that they would take it upon themselves to learn a bit about how the free market economy works instead of trying to drive a square peg in a round hole. They might also learn that unnecessary regulations, along with a heavy burden of taxes, constrict economic growth.

Lawmakers also might learn that it is not tax credits or tax incentives that spur investors to put their money into an enterprise be it high technology or film making. It is the bottom-line folks! It is the return on the investment that drives investment dollars.

If an enterprise cannot make a profit, there is little to attract investment dollars. On the other hand, if the lawmakers are obtuse enough to believe that giving an investor a tax credit equal to 100% of the investment makes good sense, then there is bridge in New York that is for sale.

Unfortunately, it is the ordinary taxpayer, like you, who ends up paying for these follies. When lawmakers grant tax credits it means that much less collected in taxes which means they have to keep the high burden of taxes on everybody else who can’t claim the goodies. Why? Because lawmakers also don’t seem to be able to tighten the state’s collective belt and reduce spending. In other words, they like to have their cake and eat it as well.

When lawmakers don’t know how much it costs to run a business, they layer regulation after regulation on businesses and then they wonder why those taxpayers go out of business.  Of course, their explanation for those regulations is because the regulation will protect them or the customers of that business. Don’t mind the fact that it means one more added cost that must be recovered in the cost of the goods or services sold by that business.

Apparently this is why lawmakers cannot understand that raising the general excise tax increases the overhead costs for the business as well as for the customers. Because business-to-business transactions are taxed at the full 4% tax rate, this means businesses will pay a good part of the 0.5% increase in the tax rate in Honolulu. Lawmakers seem to acknowledge that consumers will pay more, but apparently they think somehow businesses won’t. And if they – businesses – do, those businesses will absorb the extra cost of the higher tax rate and won’t pass the cost along to their customers by raising prices.

Talk about pipe dreams. Sure businesses are going to absorb the added cost of the tax – at least that is what lawmakers seem to believe when they came up with the estimate of how much a family of four will pay in additional general excise taxes. They totally ignored the fact that businesses can’t and won’t absorb the cost of the tax – because if they did, they would soon go out of business. So businesses will have to raise prices by at least the amount of the added general excise tab. 

Understanding basic economic principles would go a long way toward ensuring that we, as taxpayers, don’t end up paying for lawmakers’ ignorance. Of course, arrogance and obstinacy contribute to the blinding light that seems to keep lawmakers from acknowledging that they know nothing about the economy. The result is that in the end, we taxpayers end up paying for their ignorance.

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