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Growing The Economy Means Leveling The Playing Field

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By Lowell L. Kalapa

Over the last ten years, the legislature has tended to hand out various carrots to entice taxpayers to engage in a variety of activities from construction to the development of high tech businesses. While some may say that the tax incentives did stimulate these various activities by pointing to the current robust economy, there is probably no one who can definitively prove that the incentives are the reason that the economy is doing well.

This is because no data has been collected with respect to the number of jobs or businesses that have been created as a result of these tax incentives. What we do know is that the state has had to forgo tax revenues as a result of these incentives. And even that is a guesstimate because the claims for these credits are made on a lag basis. So it may be years before anyone can really figure out how much was “spent” on these incentives.

In the mean time, lawmakers have continued the same, if not higher, level of spending. The net result is that for those of us taxpayers who were not so blessed with these incentives, the tax burden has continued to be one of the heaviest in the nation. So while those taxpayers who can claim the tax credits or tax incentives walk off with a bundle in their pockets, the rest of us continue to struggle with a high tax burden and a high cost of living and doing business in Hawaii.

What is ironic is that once these tax incentives disappear, there is no doubt that some of the businesses created by these tax incentives will also have to struggle with the high cost of living and doing business. Unfortunately, we have already seen many of these businesses pull up stakes and leave Hawaii because they cannot cope with the tax burden without the tax incentives.

True, taxes are not the only consideration when it comes to deciding whether or not one wants to do business in Hawaii, but certainly one has to admit that Hawaii’s unique general excise tax burdens every transaction and, therefore, every purchase of goods and services here in Hawaii. That includes everything from the rent the business pays to the soap and mops the business may use to clean the floors. And given the fact that government in Hawaii is also a consumer of these goods and services, the cost of government is just that much higher.

Recently, a couple of states on the mainland have actually had the opportunity to reduce their taxes as a result of tightening their spending. From Rhode Island to New Mexico and Arizona taxpayers in those states will actually see their tax rates go down. In some cases, tax revenues in these states have actually blossomed as a result of the rate reductions. While that may be hard to believe, reports from these states have documented the growth in economic activity and attracting of new businesses to their states.

Hawaii policymakers may want to take a look at some of these states and see how a reduction in tax burden actually stimulates economic activity. Instead of just favoring a few, reducing tax rates across the board will benefit all taxpayers. However, this also means that public policymakers will have to discipline their urge to spend. Or as an astute observer of the tax system said recently, “Just lower the rates, stupid.”

Instead of merely throwing money at problems, lawmakers need to take the extra step and actually come up with creative solutions. This means spending time other than during the 60-day legislative session to research various alternatives that make effective use of precious tax dollars. This certainly has not been the case in a very long time. This can be evidenced by the poor, if not sloppy, legislation that has been sent to the governor in recent years.

It also means making some very difficult decisions that may not be politically popular at the moment or not allow lawmakers to hob nob with some Hollywood stars, but it is what is best for a majority of the taxpayers in the state. As the old saying goes, “As the tide rises, all boats should rise as well.” Under the current approach, many boats are left at the bottom.

This approach is certainly hypocritical when many lawmakers claim that they don’t approve of special interest legislation. But when one activity or one industry is granted a tax break that no one else can claim, that certainly flies in the face of trying to avoid special interest legislation. What is even more reprehensible is to allow these favored taxpayers to grab the money and run without ever proving that they have added jobs or given back to the community that has had to underwrite their activities. When and until lawmakers start requiring these taxpayers to prove that they indeed have improved the economy, such legislation is unacceptable. 

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