Friends Don’t Let Friends Pay Higher Taxes?

by Tom Yamachika, President, Tax Foundation Hawaii

“Friends Don’t Let Friends Pay Higher Taxes.” Sounds like a great marketing slogan, right? So just who do you think is doing the marketing? A conservative think tank? The Tax Foundation of Hawaii? A taxpayer advocacy group?

Actually, it comes from the State of Indiana.

Recently, the General Assembly of Connecticut, a state with Democratic political leadership just like ours, passed a $40 billion state budget that includes raising nearly $2 billion over two years by raising some taxes and cancelling previously approved tax cuts before they become effective. And it’s not the first time Connecticut jacked up their tax rates either. In 2011, they passed another $2 billion hike that drew considerable press attention.

Anyway, Connecticut’s current budget bill prompted a firestorm of reaction from high-profile executives such as General Electric’s CEO Jeff Immelt, who emailed employees that he has assembled an exploratory group to “look into the company’s options to relocate corporate HQ to another state with a more business friendly climate.” Connecticut Governor, Dannel Malloy, who previously was expected to just sign the bill, quickly shifted to backpedaling mode. According to the Hartford Courant, he has not yet signed the bill, leaving open the possibility of revisiting the tax hikes in a legislative special session to be held this summer.

So on June 10th, the State of Indiana took out a full-page ad in the Wall Street Journal that took aim, in not-so-subtle fashion, at three large companies that are headquartered in Connecticut – for now. It said: “GE, Aetna, and Travelers: We offer our support in the wake of Connecticut’s looming tax increase, because friends don’t let friends pay higher taxes. Indiana. A State That Works.”

So what does this all mean for Hawaii? We need to understand that we have some fiscal problems, such as large unfunded employee benefit plans. Fixing these problems will cause some pain. That is when you really think about who our friends are, because we don’t want to inflict a disproportionate amount of pain on our friends.

So here is a big policy question: Who are our friends?

Obviously we want our friends to have some money so they can help us out of our financial mess. Do we want our friends to be big businesses, just like Indiana does? The fact sheet that GE’s Immelt sent to his employees pointed out that Connecticut ranked 42nd out of 50 in the national Tax Foundation’s “2015 State Business Tax Climate Index.” On that same index we ranked 30th – a little better but with much room for improvement. (Indiana ranked a respectable 8th.)

Or do we want our friends to be small businesses, with youthful enthusiasm, entrepreneurship, and innovation? The Small Business & Entrepreneurship Council published its “Small Business Policy Index 2014” at the end of last year. Hawaii placed 47th, with only New York, New Jersey, and California scoring lower. Ouch.

Or do we want our friends to be the Hawaii residents who vote with their dollars and their feet? Forbes compared the best and worst states for taxes with emphasis on individual taxpayers and pegged Hawaii at 31st out of 50. “See where your state stacks up–and whether it’s time to consider a move,” they said.

We need to decide whether any or all of these groups – or others – are our friends, and what we can do for them. Then we can say, “Friends don’t let friends pay higher taxes. Aloha.”

- 30 -