Waiting for Taxpayers to Take the Hit

It seems the teachers’ union along with the blue-collar workers are dragging their feet in hopes that they can make it to the finish line called the legislative session and make their case before lawmakers that they should not have to take a hit.

After all, how can lawmakers resist thousands of teachers and blue-collar workers marching on the state capitol let alone parents protesting the loss of school days because of “Furlough Fridays?” So why wait until the legislative session begins? At that point, there is no doubt that union leaders will press lawmakers to find other ways to make-up the shortfall and, thus, keep public employees whole – no pay cuts, no Furlough Fridays, no reduction in benefits.

From the very beginning the position of the public employee unions’ leaders has been that the brunt of economic recession should not be borne on the backs of the public employees. This means that the only alternative lawmakers will have is to either take funds from other programs or to find new revenues, read that as “raise taxes.” Apparently union leaders don’t believe that those in the private sector have already taken a hit by either losing their jobs or working less hours or, heaven forbid, taking a pay cut. In the latter case, it does not mean working less hours and taking home less pay. What it means is working the same number of hours and doing the same amount of work and getting paid less.

Perhaps it is a matter that government is the largest employer in the state and it has the ability to extract taxes, like it or not. But elected officials should realize that, like it or not, everyone is taking a hit in this economy. If lawmakers allow themselves to be bullied into raising taxes just so public employees can remain whole while those in the private sector not only tighten their belts but give up even more of their household income because of higher taxes, they can be assured that the public backlash will be severe and long lasting. Not only that, they will damage what is left of Hawaii’s struggling economy and it will take even longer to recover.

A tax increase of any magnitude in this fragile economy will, no doubt, have a negative impact as costs soar due to higher taxes. As costs soar and overhead increases, employers will have to find ways to stay in business by either increasing prices to their customers or cut back on costs. Given the tenuous condition of the marketplace, many businesses will have to resort to the latter and reduce overhead costs. This may take the form of reducing inventory, shortening business hours, reducing employee hours, or in the worst-case scenario, laying off workers.

The point of the matter is that it makes very little sense to “take from Peter to pay Paul” when Peter is the one who makes the economy prosper. Given that the state’s current woes are related to the downturn in the economy, every effort should be made to help the economy recover, not destroy it. A tax increase of any magnitude would send most companies, especially smaller ones, out of business taking with them the jobs the community so desperately needs at this time. Even the often-discussed need to raise the unemployment insurance tax will have a devastating effect on businesses, both large and small.

It should be abundantly clear not only to policymakers at both the state and county levels that everything needs to be done to help the economy move forward, to grow and prosper so that it can once again provide the state and county government with the tax revenues they need. In the meantime, public employee union leaders must also bite the bullet and recognize that the public sector employees need to do their part. If not, then what lies ahead will be even more dire.

Should the push for raising taxes continue, lawmakers, as well as union officials, may see a backlash from beleaguered taxpayers that may result in legislation that binds the financial hands of government much like the legislation and propositions they have in California. Should that happen, public officials may find themselves in a fiscal headlock that will hurt for years to come.

Before this crisis rises to contentious levels pitting taxpayers against public employees, lawmakers need to find ways to reduce the size of government and, therefore, the amount of spending. There is strong agreement among all that government has gotten much too large over the years and the time has come to downsize.

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.