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Waiting For The Shoe To Drop

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By Lowell L. Kalapa
(Released on 11/18/07)

While complacency about the Hawaiian economy seems to pervade the island landscape, there are signs that the economy is beginning to slow. From lower hotel occupancies to a slowing in construction due to a declining demand for housing as the subprime mortgage crisis creeps across the landscape, the signs are there that some tough times are ahead.

The 2008 legislative session is but weeks away and while lawmakers may still be gun shy as a result of the Super Ferry fiasco, there are some serious issues that lawmakers must come to grips with in the upcoming session. At the top of the list is the fact that if Hawaii is to avoid another calamitous downturn similar to the one witnessed in the 1990’s, lawmakers truly need to do something about putting more money back into the hands of residents. As we know from the last downturn, families strapped by the high cost of living and lack of available employment exacerbated what was already a curve ball in the economic life cycle of Hawaii.

In order to “jumpstart” or “kickstart” the economy, lawmakers were forced to bite the bullet and adopt tax relief for residents. But the economy had skidded so far down the gloomy path that lawmakers could not achieve the kind of tax relief that was necessary all in one year. As a result, they had to phase-in that tax relief over a four-year period, making the recovery painfully agonizing. There just wasn’t enough money to provide that tax relief and still keep government running.

While lawmakers were able to keep government running the last time around by dipping into pots of special funds where they had squirreled tax dollars away, they won’t have that option this time around. More importantly, the task of “sparking” the economy will be even tougher as the plethora of taxes and fees has mushroomed in past few years as the economy basked in the warmth of ebullience.

Probably the most obvious tax increase is the half percent bump in the general excise tax rate for Honolulu’s mass transit system. Residents are just beginning to take notice of the toll it is taking on their purchases. No longer “just half a penny,” the increased general excise tax is beginning to worm its way into the cost of living and doing business in Hawaii. From the bag of rice to the cost of the weekly pizza, prices are slowly edging up. Even the clerk at the little dim sum place in Chinatown had to apologize for raising prices come the first of the year.

But not all of the increase in the cost of living is due to the general excise tax – and yes, some of the cost is passed on to Neighbor Island residents – but county officials on all islands have shifted the cost of the real property tax to non-residential properties, forcing businesses to accommodate the cost of the increased real property tax burden into their prices. It is that old misconception that “businesses can pass the cost of the tax on,” but the real question is to whom do those businesses pass on the cost of the tax? Even some business people believe that crazy notion, not realizing that the businesses from which they purchase their goods and services for use in their operations are passing the cost of the tax on to them.

Then there are the fees! Just where does one begin? The most recent kick that taxpayers got from lawmakers is the tax on maritime containers that is supposed to fund an invasive species prevention and eradication program. Proposed in response to the possibility of invasive species entering the state or moving from island to island, the fee had been suggested to be imposed on all goods and passengers entering the state and moving between the islands. With their marked propensity to tax those who don’t vote for them – tourists – one would have thought lawmakers would have slapped a fee on them. With nearly eight million tourists coming to Hawaii every year, the fee could have been just a few cents and they would have had enough to fund the program.

But, no, lawmakers decided to hide the fee in everything we, as residents, purchase each and every day we live here. Yes, visitors will pay some of the cost, but then they are here only a few days a year. But what the new container fee will do is to further price the cost of a Hawaii vacation out of the hands of more and more prospective visitors to Hawaii. Again, another blow to the economic outlook for Hawaii.

There are fees to start up a new business, to keep it going, fees for building out a new retail space or even a warehouse. All of these costs will just add to the cost of doing business in Hawaii. Unless lawmakers begin to ease the burden of taxes, we will be faced with another economic challenge.

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