Bad News has a Silver Lining

From Grassroot Institute, November 9, 2018

At first it would seem like great news that Hawaii moved up a surprising eight places in the latest annual Economic Freedom of North America Index, from 45th among all U.S. states in 2017 to 37th in 2018.

But things are not always what they seem.

In this case, economic freedom in Hawaii actually diminished during the latest measurement period, from 6.3 in the 2017 Index to 5.48 — with 10 being the most free. But economic freedom in certain other states declined even worse during the same period than in Hawaii.

So here we are, wishing we could celebrate but can’t.

Yes, we are happy that Hawaii passed Vermont, New Mexico, Mississippi, Rhode Island, Delaware and Ohio to make it to 37th. Our former rank of 45th is now held by Oregon, which was 40th in 2017.

Scrabbling at the bottom of the rankings were New York (50th), Kentucky (49th), West Virginia (48th), California (47th) and Alaska (46th). The five states with the highest levels of economic freedom in 2017 were — from first to fifth — Florida, New Hampshire, Texas, Tennessee and South Dakota.

Again, it’s a happy day that Hawaii, for a change, is not scraping along the bottom anymore in this annual index of economic freedom. But that is based on a relative measurement — comparing Hawaii against all the other states.

Going by objective measurements, the sad truth is that economic freedom in Hawaii deteriorated in 2016, the data this year’s Index is based on. Here are some of the reasons:

>> In the category of “Sales Tax Revenue as a Percentage of Personal Income,” Hawaii’s general excise tax earned a score of 0.00 — the worst of any state.

>> In the category of “Top Marginal Income Tax Rate,” Hawaii tied for 49th with Minnesota. Only California did worse.

>> Concerning state property taxes, normally an area of strength in nationwide surveys, Hawaii took a hit.

>> In the category of “Labor Market Freedom,” Hawaii also took a hit, reflecting the state’s heavy union presence and minimum-wage increases.

And things are only going to get worse before they get better. The data for this year’s Index — produced annually by the Canada-based Fraser Institute, the Mexico-based Caminos de la Libertad and the Grassroot Institute of Hawaii — doesn’t include changes to tax and labor laws since 2016 that are likely to lower Hawaii’s score in the future.

The good news is that the annual Economic Freedom of North America Index provides a road map to freedom and prosperity. There’s no mystery or magic formula to improving our state’s economy. It’s all there in the Index: Trim government regulations, reduce our infamous tax burden, expand labor market freedom, and more.

With such a road map in hand, and working together, we in Hawaii can successfully work our way toward the top of the economic freedom ranking, no matter how you want to measure it.

E hana kākou! (Let’s work together!)

Keli'i Akina, Ph.D.

President/CEO