A couple of columns ago, we urged our readers to let their lawmakers know how they feel about right-sizing government. That challenge elicited a number of responses about just how to let lawmakers know what taxpayers thought about the size of government and how their hard-earned tax dollars should be spent.
However, if it is any indication from the responses that the commentary received, many taxpayers do not believe that taxes should be increased to make up for the budget shortfalls. If that is the case, then taxpayers need to start with that request up front, that taxes should not be increased, be it on residents, tourists, businesses, or some amorphous thing or being that lawmakers seem to be able to find in their quest for more revenues. Lawmakers should be reminded that Hawaii has one of the most onerous tax burdens among the 50 states, ranking in the top five states with the highest per capita tax burdens.
Lawmakers should also be reminded that although visitors may not vote in Hawaii, they do vote with their feet and when the tax burden becomes unbearable, they will go elsewhere. Not only that, while the visitor may have to pay a higher tax on his hotel room or rental car, that means the visitor has just that much less to spend on other goods and services while he is here on his visit – be it a catamaran ride or an aloha shirt.
And if the visitor does not come to Hawaii, hotel keepers and visitor attractions will still have to pay their overhead costs be it property taxes or utilities which means they must turn to their employees to help out by cutting hours or rolling back pay.
In their great wisdom, state lawmakers decided to increase the hotel room tax or transient accommodations tax (TAT) in order to generate more revenues to close the budget gap.
Unfortunately, hotels have had to reduce room rates just to fill the beds in their hotels and despite this effort, occupancy levels are still below what they were last year, especially on the Neighbor Islands.
Perhaps the biggest last laugh on lawmakers’ efforts to generate additional revenues to fill the growing budget deficit is their move to increase personal income tax rates on the wealthiest of income earners, arguing that this effort was to protect the average wage earner making $150,000 or $330,000 or less.
Too bad they forgot that they already gave away the store with those generous tax credits handed out for investments in high technology businesses and research in Hawaii. Since it was probably those who had the means to invest $2 million a crack in these activities, they are more than likely the same taxpayers who will be hit with the new higher rates. The result will be an acceleration of claims for the credits, as those taxpayers will now have the state income tax liability against which they can offset the credits.
However, what the increase in the personal income tax rates will do is to punish the legitimate small businesses that are not incorporated but report their business income as personal income. This will put even more pressure on small businesses forcing even more to the brink of going out of business and perhaps laying off what few employees they may have.
That being said, think about what you think should be a core service of state government. Sure we all know how important education is for the future of Hawaii, but beyond that think about those services that are critical to the health and safety of the community. It could be child welfare, domestic violence, health care, or public safety.
Consider how government could become more efficient. Do taxpayers realize that in many departments, records are still kept by pen and paper and records are maintained on index cards? Or even if records have been computerized, different hardware and software are used by different departments to the point that information cannot be readily shared between departments.
Then think about which services could be outsourced which is a kinder word for privatized. Remember privatizing services formerly done by public employees does not mean a loss of jobs but a shifting of those jobs from the public sector to the private sector.
What it does mean is that the state can select the best provider of those services with an eye on cost efficiency and productivity, holding the contractor accountable for the delivery of these services. In any case, let your legislator know what you think needs to be done to right-size state government. If you don’t, they will assume you want the status quo.
‘Lowell Kalapa is the president of the Tax Foundation of Hawaii’