Hawaii Tax Foundation – Greatest Issue is the Economy and Business Climate

BY LOWELL L. KALAPA

– As the war of words heats up during this year’s campaign season, it appears that one of the most important issues to the Hawaii voters is being lost in the shuffle of the debate over issues like civil unions, racism and experience.

That issue is important to every household, not only in Hawaii, but throughout the nation and that issue is the state of the economy and the business climate. At the national level the charges sound mostly partisan with the current administration trying to blame the last administration’s policies while legislative leaders debate the excessive spending of federal dollars. On that issue there is growing public cynicism that we can spend our way out of this recession.

Granted the current recession was precipitated by the collapse of the sub-prime mortgage market and necessitated the federal government stepping in to bail out some of those failing financial institutions, but the majority of that money has been paid back with interest. But that collapse sent fear into the hearts and minds of consumers as they saw friends and neighbors lose their jobs or their houses as they defaulted on mortgages. So the response was to spend millions of dollars on all sorts of programs as part of the federal stimulus package. Unfortunately, that stimulus package doesn’t seem to be working, but the administration thinks that more needs to be spent. That is what congressional leaders and the public are cautious about – not only because the stimulus package doesn’t seem to have worked but taxpayers are deep in debt.

At the same time, the administration and Congress will have to grapple with the expiration of the Bush-era tax cuts that will occur at the end of the year. The president has already gone on record that he will not approve continuance of those tax cuts for high-income earners but will consider extending the tax cuts for the “middle” class taxpayers, which would be political suicide if he didn’t given the upcoming midterm elections. But all through this neither side – administration or Congress – has talked about reining in federal spending as a key to restoring confidence in our federal government. Stopping the red ink in public spending is the first step in restoring the nation’s economic power and global role. As noted in an earlier commentary, so much of our nation’s debt is currently being held by foreign nations that it makes it difficult to deal with many of these countries because they could cash in on the debt they hold, putting the United States at the mercy of these foreign powers.

If, in fact, the administration wants to curtail the Bush-era tax cuts, it should only be allowed to do so if the increased revenues are used to pay down our nation’s debt and not fund new or bigger programs.

Here in Hawaii the rhetoric among the gubernatorial candidates has a similar ring as they question whether or not taxes would be raised. One candidate promises not to raise taxes, the other argues that he would only do so if the people want more services. And while it would seem like night and day, one would and the other wouldn’t, there is a subtle difference and that is taxes would be raised if the voters want more services. While the differences are ever so slight, one has to listen carefully in the latter case as the candidate is saying taxes will have to be raised if voters want more services, obviously with the presumption that voters want more services. However, neither candidate is saying that they will cut back services; rather they talk about getting rid of inefficiencies and waste, something as amorphous and vague as waste and inefficiencies are defined in the eye of the beholder.

As for the third candidate on the other side of the party line, he supports business by endorsing handing out tax credits for a variety of business activities. But as we have learned, targeted business tax credits are nothing more than another form of spending public dollars, albeit through the back door. So that strategy is nothing more than more government spending.

Like the situation at the national level, the real problem in Hawaii is that government spending has gotten out of hand as each vocal minority cries out for this or that service while the majority of taxpayers/voters try to hold off any kind of tax increase in what is an already overburdened business climate.

If there is to be any hope for economic growth, government at both the state and national level needs to take a supportive role in the economy, not one that saps the business community of its strength to grow the jobs people need.

Lowell L. Kalapa is president of the Tax Foundation of Hawaii.

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