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Jump On The Freeze Bandwagon

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By Lowell L. Kalapa
(Released on 12/5/10)

Well, it seems the message of the midterm elections is sinking into the White House as the President called for a two-year freeze on the pay of federal civilian employees. Although that may seem like a dramatic move, that action will save the federal government only about $5 billion.

“Only?” It is only in that the federal deficit runs into the trillions of dollars and by comparison a few billion dollars is only the proverbial “drop in the bucket.” So much more needs to be done to reign in the excessive federal spending that has taken place over the past decade and, more importantly, in the past two years as the federal government tries to spend its way out of this recession.

State and county leaders also need to take a cue from the President and begin to bring spending at the local level under control. During the past two sessions lawmakers attempted to reduce spending while the local county councils nipped and tucked their budgets in their attempt to avoid having to raise real property tax rates. However, in the end, both state lawmakers and local county officials ended up raising taxes in order to balance their spending plans.

Given that many observers of the state and local economy don’t forecast a vibrant return of economic prosperity for at least the next calendar year, public policymakers will again be faced with budget shortfalls. If the message of the midterm elections didn’t resonate with Hawaii voters, it certainly was heard in the White House and in the halls of Congress. Voters across the nation placed the blame squarely on federal officials for the economic malaise and the continuing high unemployment levels that have plagued the nation.

Voters also believe that the actions taken to try and spend our way out of the recession did not work and they want something else to be done. They also look across the Atlantic pond and witness the crushing burdens of national deficits on the economies of Ireland, Spain, Portugal and Greece and the possibility that our nation may also be in the same boat if nothing is done to address federal spending.

Here in Hawaii most taxpayers acknowledge that we are amongst the most heavily taxed states in the nation, ranking in the top ten percent of the race for per capita tax burden. And we learned that while visitors may pay part of the burden, when visitors don’t come to Hawaii, that burden falls heavily on residents who must cope with that burden 365 days of the year. Add to the tax burden the burden of regulations imposed on businesses and consumers in Hawaii and the cost of doing business and living in Hawaii soars.

Thus, if there is anything the new administrations and lawmakers need to do it is to reduce the burden of taxes and fees and streamline the regulatory process in Hawaii if prosperity is to be restored. When and until that happens, the economy will continue to struggle and drag its feet, weighed down by the burden of government in Hawaii. In turn, tax revenues will continue to lag behind the demands for spending, not that Hawaii has a revenue problem as much as it has a spending problem. The challenge for elected officials is to bring a balance back into being, insuring that taxpayers continue to retain the resources that will allow them to spur economic activity in the marketplace, creating the tax revenues that feed government.

It should come as no surprise that consideration must be given to repealing many of the tax hikes adopted in recent years. Even though some were temporary, such as the net income tax rates on high income earners and the TAT on hotel rentals, that is still money that would otherwise have been spent on a shirt or new bed sheets or perhaps a night out on the town. Lawmakers must recognize that taxes take money out of the economy that could otherwise have supported consumer spending which, in turn, increases the demand for goods and services that create the employment that Hawaii’s families need.

And while some elected officials may argue that those dollars will be spent by government, one has to ask the question of whether or not those services funded by tax dollars are the most efficient use of those resources. Take, for example, the beverage deposit fee. If it, in fact, is encouraging consumers to recycle, then why is there millions of dollars sitting in the beverage deposit fund? That’s twenty or thirty million dollars that could be circulating in the economy, creating jobs.

Indeed local elected officials should take a cue from the actions of the President and get on the bandwagon to curtail the growth of government.

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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