(Released on 3/20/11)
While our thoughts and prayers go out to the victims of the earthquake and tsunami in Japan a couple of weeks ago, we must also turn our attention to the impact that the disaster will have on us here in Hawaii.
As Hawaii struggles to recover from the economic recession that hit not only our country but the global economy as well, the fallout of the Japan calamity is certainly the last thing we need to stall that economic recovery. There is no doubt that the disaster’s impact on the Japanese people and that nation’s economy will spill over and affect the economic outlook for Hawaii. With nearly one in every five visitors currently coming from Japan, and the per capita expenditure for Japanese visitors nearly triples that of mainland visitors, any drop off in the number of visitors from Japan will have a substantial impact on Hawaii’s economy and the resulting tax revenues on which government in Hawaii depends.
Even without the impact of the Japanese disasters, the budget shortfall continued to grow. Where the state’s Council on Revenues appeared to be ebullient late last year, increasing the forecast for general fund revenue from 2.0% to 3.0% based on an increase in hotel occupancies, a rise in per capita visitor spending and good retail sales for the holidays, it dropped its forecast last week to 0.5% for a reduction of more than $110 million for the current fiscal year. The governor has now called for the Council to reconvene to evaluate the impact of the Japanese disaster and the effect it will have on general fund tax collections.
As a result, public policymakers are scrambling to find ways to counter the expected slump in the economy and those tax revenues. So far this session the discussion has been largely focused on raising revenues, starting at the top with the administration proposing to tax pensions, eliminating the deduction for state income taxes paid, taxing sugary beverages, and increases in the tax on alcoholic beverages. While most of the administration’s tax proposals received a tepid reception, most of them are still under consideration.
At the legislative level, the House has once more introduced the idea of suspending certain exemptions and imposing the general excise tax at a rate of 2% on these exemptions for the next four or five years. While House members have shied away from calling this move a tax increase, characterizing this strategy as removing “special interest” exemptions, it is nothing more than a tax increase and a substantial increase in the cost of living.
Why would these “special interest” exemptions increase the cost of living in Hawaii? Well, one of the largest “special interest” exemptions is that extended to stevedoring activities. This exemption was adopted when a U.S. Supreme Court decision determined that the interstate commerce clause did not prohibit states from taxing those activities. Because nearly everything consumed in Hawaii comes over the docks, the imposition of the general excise tax at the 4% rate would have rippled through the economy causing the price of goods and services to rise. Thus, if the “special interest” exemption is suspended and taxed at the 2% rate, it would affect the price tax of everything from rice to a pair of shoes.
Another “special interest” exemption that would be suspended would be the leasing of aircraft and aircraft parts. Since any departure or arrival for residents or visitors is aboard aircraft, whether leased or owned, the cost of the general excise tax on the leasing of those aircraft or aircraft engines would affect the cost of that air travel. Thus all passengers – residents and visitors alike – would have to pay more to vacation or do business in Hawaii.
Another “special interest” exemption that would be suspended is that for providers of telecommunications where one provider acts or provides service for another telecommunications provider. Otherwise known as “roaming” charges, these costs are reimbursed back and forth among providers and largely are no longer charged to individual customers as in many cases those charges create a “wash” between providers. Thus, the cost of the tax will be passed on to customers.
What is ironic is that the budget shortfall had its genesis in the legislature which for years found it more expedient to satisfy all the demands of each constituency instead of being willing to draw the line in the sand on how fast government grew. Instead of exercising prudence, lawmakers spent every dime they could get their hands on. Now that government has grown beyond the capacity of the economy, they want you taxpayers to bail them out by asking you to pay more in taxes. Never mind that lawmakers raised the personal income tax on income earners, raised the conveyance tax, raised the cigarette tax, and raised the TAT or hotel tax in the last two years, now they want taxpayers to pay even more, albeit hidden from sight. Now is that being honest?