The Little Engine that Could?

by Tom Yamachika, President Tax Foundation Hawaii

When we think about everything that is happening with government and public finance, it’s daunting to add up the numbers that are being bandied about – a hundred million to cool the schools, billions in unfunded liabilities for our state retirement plans, and the untold billions required to run our government on an annual basis. Where does all that money come from?

Consider this. A person goes to the store to buy goods. The store buys those goods from a manufacturer and pays workers to run the store. The manufacturer buys raw materials and pays workers to manufacture products. The raw materials supplier pays workers to mine the materials and goes to the store to buy other needed supplies. The workers need to eat, buy goods, and so forth. So everyone recycles the money they receive. This recycling system looks like an engine with money whirling around and around. Tax revenue is produced at each stage of the economic cycle, either on the sales, on the net profit, or other taxable transactions that make up the cycle. The faster the engine spins, the more tax revenue is produced.

Now here is a question for our lawmakers and policy makers to consider as they work to make Hawaii a better place to live, work and do business. Are you taking care of our engine? Not just spending the money that comes out of it, but are you really taking care of the engine? After all, government can make it easier or harder for the engine to spin.

Take, for example, the engine called “construction.” Construction needs to be done or supervised by responsible people, so we require them to have education and experience, and we require proof of financial responsibility like an insurance bond. Then the particular construction project needs permits, some of which need to traverse a labyrinth of agencies before all of the necessary approvals can be obtained. The length of time it takes to get construction permits in Hawaii is legendary. Certainly, there are very good reasons for all or most of the permitting requirements, but what effect do they have on the engine?

What about opening a business here in Hawaii and hiring employees? Potential employers are immediately faced with a mountain of paperwork and an ever-growing list of associated costs. They register to pay taxes, secure prepaid health care, get worker’s compensation, buy temporary disability insurance, register for unemployment coverage while also having to worry about business decisions such as a location for the business and perhaps associated rent, getting the lights turned on and computers in the office, and so on. Once all of these requirements have been addressed, then maybe some business can be done. Certainly, there are very good reasons for all or most of the employer requirements, but what effect do they have on the engine?

And then, of course, there is business itself. Our elected and appointed officials impose new fees and regulations on this or that activity all in the name of making our environment and community a better, greener, or safer place to live. The fees and regulations carry a cost, of course, not only directly but also in the time required to learn the rules and regulations so the business can comply with them. Certainly, there are very good reasons for all or most of the fees and regulations, but what effect do they have on the engine?

So what do we have in Hawaii? A little engine that can? A little engine that could? We need an engine that does.