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Initiate Change In Government’s Role

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By Lowell L. Kalapa
(Released on 11/7/10)

Now that the elections are over, those who were successful need to heed the lessons we have been given by the current downturn in the economy and that is that government cannot, by itself, dig its way out of this abyss.

Despite pouring billions of dollars into the much-touted federal stimulus plan, the national unemployment rate continues in the double-digit stratosphere with very little end in sight. Contrast that with a company like Ford Motor Company that turned down federal bail out funds but took what resources they had and turned the company around to the extent that they reported substantial profits for the last quarter.

Advocates of the stimulus program probably figured that the last time around when America experienced the depths of an economic abyss, otherwise known as the Great Depression, it was the federal government that pulled the country out of the hole by undertaking large public work programs infusing large amounts of cash into the economy and putting millions of unemployed back to work. But people should remember that it was not until the onslaught of World War II when private industry began to create jobs that many of the unemployed were put back into productive jobs, albeit that the products being produced were for consumption by government.

That is what is key to the recovery from the current economic malaise, the restoration of consumer confidence in the system that, in turn, will spur the consumption of goods and services produced by private industry. The consumption of public goods and services does not create jobs that will attract capital. Thus, government plays a supporting role rather than a leadership role when it comes to the economy. That is goods and services produced by government merely recycle the same money that government takes in or in the case of the federal government, creates debt as it has the ability to print money for which they issue an IOU.

Here in Hawaii not only has state and county government taken on the draconian role of the public regulator, imposing all sorts of licensing and permitting requirements, but in recent years government has taken on the role of trying to direct economic development, deciding which types of activities were preferable by granting all sorts of subsidies and tax breaks for those activities. While politicians like to think that they are helping to provide new employment opportunities and diversifying the economic base, it comes at a price. And that price is a heavier tax burden on all other taxpayers who are not so favored.

So while the favored activities get all sorts of help from state or local government, the rest of the tax- payers struggle to make ends meet or keep their doors open. This gap between the favored and the not so favored became acutely apparent during the past two legislative sessions when lawmakers, faced with a billion-dollar short fall, struggled to find ways to close that gap by raising taxes and fees. At the same time, they attempted to take back some of the subsidies and tax incentives and found themselves accused of going back on their word.

Advocates for these tax breaks and subsidies railed against lawmakers arguing that they had made plans based on the provisions of these laws and to change the rules in the middle of the game was just wrong and would send signals to others that one could not rely on Hawaii law.

With the expiration of some of these tax incentives there will, no doubt, be efforts to renew and extend these tax incentives. Lawmakers should be wary that to do so may put them right back into a no-win situation of having to raise revenues while still having to give away the very revenues they need because they extended these tax incentives.

If nothing else, lawmakers should recognize that such tax incentives reduce their options in the future. They should also remember that by handing out tax incentives, they are reducing the revenue they need to fund important public services. If those public services are to be fully funded, that means they will have to ask other taxpayers to pay even more to keep those services funded.

Finally, lawmakers do not have the wisdom, nor does anyone else, to know which industry or activity will be the success of the future, providing the employment opportunities Hawaii’s people need. Rather than focusing such subsidies on a few, the tax and business climate should be improved for all. Rather than dictate which industry should be subsidized, government’s role should be to support all industries.

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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