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Don’t Think The Fiscal Crisis Is Over

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By Lowell L. Kalapa
(Released on 5/2/10)

While reporters and newscasters are reporting on the adjournment of the legislative session by saying that lawmakers were able to pass the state operating budget without increasing the general excise tax, it is a bit premature for taxpayers to sigh with relief.

While taxpayers may have dodged the BIG bullet, there were nevertheless oodles of tax and fee increases including the controversial “barrel tax” that was supposed to fund alternate energy initiatives but instead would have helped bail out the state general fund. What should concern taxpayers is that taxes were increased, period. While some taxpayers may applaud increases in the cigarette tax, it was the fact that lawmakers could not cut enough in state spending to spare us any kind of tax or fee increase.

This means that unless lawmakers put their collective noses to the grindstone in the interim, the problem will continue into the next session when they may, in fact, have to adopt an across-the-board increase in either the general excise tax or the personal income tax. In fact, lawmakers hinted at the possibility that there might be a hike in the general excise tax rate in a measure they adopted that would guarantee income taxpayers would get their tax refunds on a timely basis by directing that any proceeds from a future increase in the general excise tax rate will go toward making sure those income tax refunds are paid out.

So instead of breathing a sigh of relief, taxpayers should demand that their legislators get back to work instead of glad-handing, sign waving, and knocking on doors to solicit their reelection. Voters should demand that their lawmakers work on solutions other than raising taxes to close the shortfall in the state’s budget. While lawmakers may be crossing their fingers hoping that the economy will recover and that tax revenues will start flowing back into the state’s treasure chest, most observers agree that the comeback will be a long time in coming.

Although lawmakers may argue that they need to raise taxes to keep all of the state services funded, one has to question just how hard a look did they take at many of those services. As we have learned, lawmakers have managed to mask the tremendous growth in state government by funding many new services and programs out of special funds created by many of the recent sessions. When one compares the growth in general fund expenditures combined with the growth in special fund spending other than for transportation, that spending has grown by nearly 91% over the past 15 years while the state’s total personal income (TPI) has grown by only 82%. Yet that is the yardstick by which the state should have complied had lawmakers not created the plethora of special funds to fund programs that were formerly general-fund financed.

Thus, while technically the constitutional spending ceiling has not been violated, in reality because of the budgetary machinations, it has. Thus, unless lawmakers begin to address this issue with all sincerity, taxpayers are almost guaranteed a tax increase next year if spending is not curtailed. Granted, this year the impact of the recession and falling tax revenues did not become apparent until the biennial budget had been put to bed last year, but we now know that we are in a difficult situation. There is no excuse to put off the hard fact-finding until next session only to be overwhelmed by another shortfall that continues to escalate.

Taxpayers can do their part in the upcoming campaign season by questioning those aspiring lawmakers who either want to be elected or reelected to office by asking them what they would do to solve the financial crisis facing either the state or the city. Further tax and fee increases should be an unacceptable response as any increase in the already heavy burden of taxes and fees is preventing the economic recovery of the state. Taxpayers should also be wary of the excuse that businesses can just pass on the cost of the increased general excise tax rate. Who do these politicians believe is that person or thing to whom the added burden will be passed? And if those candidates don’t know, be prepared with a mirror because they need to realize that passing those added costs on merely ends up stealing from the family budget with either higher costs at the register or a reduction in the employment rolls.

No, the financial crisis of the state and the counties is not over. What we do know is that unless our elected officials continue to pare government spending so that we are providing the core essential services, taxpayers are almost guaranteed a major tax increase.

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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