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Perpetual Money Machine

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By Lowell L. Kalapa
(Released on 5/31/09)

What taxpayers should take away from this year’s session is not so much that the success was in balancing the budget as much as the fact that lawmakers look upon taxpayers as perpetual money machines.

Although lawmakers proclaim that they care about the downtrodden and oppressed, they hardly blink when it comes to stepping on the downtrodden and oppressed to ask for yet another tax dollar. Looking back on simpler times in the years following statehood, a major across-the-board tax increase was adopted in order to provide the funds to build the infrastructure that the new state needed to accommodate a changing economy and a growing population. As the state grew, the economy went through spurts and sputters as occasionally growth in demand did not keep up with growth in supply and, like recent downturns in the state’s economy, the community experienced the hardships of unemployment.

However, in those early years lawmakers found ways to tackle those economic downturns without resorting to increases in taxes and fees. They, instead, spent time pouring over the operations of state government and looking at the delicate balance between what state and county governments needed to do to protect the health, safety and welfare of the community.

Even the governors convened task forces and study groups to get public input and together with lawmakers addressed the financial and economic problems facing the state. One group convened by Governor Burns in 1973 noted that it was possible to solve the financial problems that faced the state at that time by reorganizing government and realigning the functions of the state and county governments. In looking at the tax system, that group noted that Hawaii’s tax system, at that time, was well balanced and was sufficient to produce the revenues needed to grow the state. And despite calls for a tax increase, this group, known as the Commission on Operations, Revenues and Expenditures (CORE), flat out stated that there was no need for a tax increase.

Being pragmatic, the group also noted that only as a means of last resort should there be an “exportable” tax like a hotel room tax and only if there were no other alternatives. The commission also recommended that consideration should be given to raising both personal and corporate income taxes and by all means an increase in the general excise tax rate should be considered as only a last resort.

It was also the recommendation of this commission that a ceiling be placed on state spending, an idea that would come to fruition in the 1978 Constitutional Convention. While much of the report discussed tax and revenues, the bulk of the study was devoted to the operations and expenditures of state government. Indeed, another commission was appointed a year later to pursue the recommendations made for every area of state government, from education to welfare, with the goal of making the administration and delivery of services more effective and efficient.

Perhaps it is time to go back and look at the CORE report, not so much as to the specific recommendations as much as to the methodology and approach to making government more efficient. It seems that over the years since that last crisis, lawmakers and administrators have come to believe that government is the “be all to end all.” The result is the growing demand for more and more resources to provide the multitude of services and programs lawmakers seem to believe are necessary and they have found ways to fund these ventures, that is, up until now.

And that is why lawmakers and administration officials found themselves in a bind this year. Government has grown much larger than it should have and new programs and services have grown along side, each with its own constituency. And while some may argue that the problems faced by the community have multiplied, one must ask why have they grown to the proportions that they have?

Could it just be that the underlying economic base of the state is no longer strong, able to withstand jolts from the national and global economy? Could it be that taxpayers are so overburdened that they lack the resiliency that they had when there was a fair balance between the public and private sector? These are problems that need to be addressed on an ongoing basis. They cannot be left to the rush of a sixty-day legislative session.

If lawmakers and this administration truly want to set a course for the future of this state, then they need to spend the time necessary to address the systemic problems in government and it will take time and a concerted effort.

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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