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House And Senate Need To Get Going On Spending Cuts

posted in: Weekly Commentary 0
By Lowell L. Kalapa
(Released on 11/28/10)

Although the transition at the executive level will not take place for another week, hopefully Hawaii’s new governor and his executive team have begun putting together their version of the state’s two-year spending plan.

And downstairs in the legislature, organization of the House has been a very slow process. While the organization of the legislature will spell out which legislators will head which committees, time is flying by as the budget woes continue to plague the state’s checkbook. Although general fund tax revenues have been improving, they are still on the minus side of the balance sheet as a result of the deferral of last year’s income tax refunds to the current fiscal year.

For veteran legislators, they are well aware that in addition to making some very painful cuts to programs and services during the past two sessions, taxes were also increased to cover the more than one billion dollar shortfall. While the idea of solving this big black hole in the state budget may tempt lawmakers to consider a general tax increase, say in the general excise tax or the personal income tax, lawmakers must recognize that all taxpayers are struggling to make ends meet. They must also recognize that Hawaii’s taxpayers are already some of the most heavily burdened in the nation on a per capita basis and while some cynics like to point out that a good part of the tax burden is exported to Hawaii’s visitors, as we learned recently, when those visitors don’t come, it is only residents who end up paying those taxes.

Indeed, while the problem may be perceived as a shortage of revenues and, therefore, more taxes have to be raised, lawmakers need to look at the budget dilemma from the other end and that is that perhaps there are just too many programs and services being provided by government. Taxpayers must recognize that if they believe taxes are already too high, then the only way relief can be had is if the demand for spending is also alleviated.

That said, taxpayers must also realize that their favorite program or service may be on the chopping block. There is no doubt the constituents of these programs and services will scream and protest against their demise.

And that is where it will be up to lawmakers to make those hard decisions. Lawmakers must remember that this is why they were elected, to make difficult decisions that will benefit the majority of the voters/taxpayers.

Raising taxes is certainly not in the best interest of the majority of taxpayers from families to small businesses to big businesses to locally-owned businesses to those that attracted investors from out of state. Higher taxes will only drive families out of the state and businesses out of business. Lawmakers must not forget that taxes have been increased over recent years, so it is not like Hawaii taxpayers have not had a tax increase in years. The general excise tax rate was recently increased on Oahu for rail and high-income earners were hit with increased personal income tax rates last year. Cigarettes have constantly been the target of increased tax rates because it is only too easy to take aim at what many consider an unhealthy and, therefore, an undesirable habit. Conveyance tax rates have been increased largely on the excuse that it makes those filthy rich nonresidents pay for their “second home,” not realizing that nonowner occupied residential properties are also occupied by renters, and the hotel tax rates have increased because it is those visitors who end up paying that tax.

But taking more money out of the economy is just that, taking more capital out of an already capital deprived economy. Without those dollars flowing through the economic veins of our island state, workers would be laid-off and some businesses may even close, as we saw recently.

So raising taxes is not the answer to our state’s dilemma. It is really all about what has become excessive spending. And those lawmakers who have been at the table know that it is a difficult task to cut that spending. No one promised that this would be a cake walk. It is going to take some hard work evaluating which of the current services are essential and crucial to the health and safety of the community and which services the community could survive without or that could be better provided through the private sector.

The problem now is that solutions will not be easy, but unless lawmakers set to work immediately they may find themselves between a rock and a hard place making decisions that are ill-conceived and done in haste as they race to adjourn the next legislative session on time. Just cutting all expenses across the board by some imaginary percentage is equally as irresponsible as there are some services and programs that are more critical to the community’s needs than others. So let’s hope lawmakers get to work soon, but even soon may be too late.

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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