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Zealous Policymakers Likely Will Raise Taxes

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By Lowell L. Kalapa

(Released on 1/06/08)

As the legislative session looms large before us as taxpayers, there is always the likelihood that lawmakers may find more ways to take our hard-earned tax dollars from us.

The raid of the highway fund a few years ago plus the expected mismatch between the consumption of fuel as a flat line versus the inflation beleaguered cost of maintaining the state highways is sure to prompt consideration of a hike in all highway related taxes. Although the administration convened a two-session summit on shoring up the financing of the state highway program, nothing seems to have come out of that workshop as far as a recommended fix. Perhaps no one wants to whisper the words “tax increase.”

Indeed, no one wants to take the blame for having raised taxes and with the half percent increase in the general excise tax for Honolulu’s mass transit project beginning to have a spiraling effect on the cost of goods and services throughout the state, lawmakers will probably shy away from the issue of tax increases and flee to the hidden tax of user fees. Either that or they will resort to raising activity specific taxes such as the conveyance tax which is currently tapped to fund the affordable rental housing fund, the natural area reserve program and the legacy lands fund.

In the latter case, lawmakers believe that they can get away with funding programs that really do not have widespread support and therefore could not compete with other general fund needs. But that is exactly how lawmakers intended to fund low priority programs with targeted activity specific taxes, because these taxes are paid only occasionally by individuals and businesses. The problem is that these taxes then go unaccounted for and the program expenses never seem to catch the eye of lawmakers as there is little that can be said about them once the funds are earmarked.

As the crystal ball gazing economists of the state have pronounced, Hawaii’s economy will begin to slow in growth. It may not decline as is predicted for the national economy, but what growth there will be just will not be as robust as it was in the past few years. With credit issues facing potential home buyers, demand for new construction will taper off along with the completion of military housing renovations and new construction. As a result, tax revenues will not grow at the same pace as they did in recent years. And unless lawmakers can curb their penchant for spending – which probably will not happen anytime too soon – taxes and/or fees will have to be increased.

Is that such a dour outlook? It might be if indeed taxpayers don’t pay any attention to what is happening at the state capitol. And if lawmakers are able to pull the proverbial wool over the eyes of the taxpayers, then taxpayers certainly deserve what they get in the way of tax increases. Thus, more than ever, taxpayers need to pay attention to what legislators do during the upcoming 60-day session.

And just as much as taxpayers should watch how lawmakers spend their hard earned tax dollars out the front door, taxpayers also have to be vigilant about how lawmakers will spend those hard-earned tax dollars out the back door with tax breaks for this or that specific, special interest group as they play with tax credits, tax exemptions and other types of special treatments for specific taxpayers. It may not look like real money, but sooner or later, taxes not collected from these special interest groups will mean that the rest of us will be asked to pick up the slack.

So will taxes be increased? They will and can be increased if you and every other hardworking taxpayer doesn’t pay attention to what lawmakers will be doing in the next few months. While the starting gun has yet to go off, lawmakers have already begun the task of putting together the supplemental budget and have been drafting legislation for weeks, so it is not too early for taxpayers to hone their sights on lawmakers who are so eager to spend those tax dollars.

While there will be a plethora of issues lawmakers will throw into the legislative hopper, be it about domestic violence, prisons, housing, education, or the environment, all will require some kind of funding from the public pocketbook. Taxpayers just need to remind lawmakers that it is not their money to spend as they wish, but the taxpayers’ dollar. Let’s keep that mantra going as we begin yet another legislative session.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

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