Right diagnosis, wrong prescription

From Grassroot Institute, January 24, 2020

If you want to look for the silver lining in Gov. David Ige’s latest State of the State Address, you could say it’s significant that he isn’t ignoring our cost-of-living issue.

Yes, acknowledging Hawaii’s notoriously high cost of living is like noticing our stunning sunsets or beautiful weather. But it's still a reason to be optimistic when the governor puts our cost of living and the number of residents leaving for the mainland at the heart of his State of the State speech. For too long, policymakers have dismissed Hawaii’s cost of living as “the price of paradise” — supposedly an immutable fact unaffected by state policy. Acknowledging that the state government could help lower the cost of living is an important first step.

Unfortunately, many of the proposals outlined by the governor would do little to help lower the cost of living in Hawaii, where the real value of $100 is only $84.39, according to the national Tax Foundation. Some of Ige’s proposals could even make things worse.

For example, affordable housing is a real problem, but the plan offered by the governor — 99-year leasehold condominium units built and managed by the state — doesn’t come close to addressing the problem. Rather than embarking on a big, expensive government project that would have only a minimal impact on the statewide housing shortage, the state should remove barriers to development and let the market respond to the housing demand. 

Opening up more land for residential use, streamlining the bureaucratic hurdles that slow down building projects and reexamining zoning laws that unnecessarily hinder development could do far more to address the lack of housing.

In a similar way, the governor’s proposed minimum-wage hike would do little to address poverty or the cost of living in Hawaii. In fact, a substantial increase likely would increase the cost of living as businesses raise prices and cut jobs or hours to compensate for higher payroll costs, harming the very people the hike was supposed to help.

Trying to ensure that everyone in Hawaii reaches a “living wage” is a worthy goal, but the best way for the state government to achieve this is to give everyone a raise by lowering the cost of living. This could be achieved by reducing regulations and by cutting taxes. 

Regulations increase the cost of doing business, add to consumer prices, make housing unaffordable, discourage entrepreneurship, limit job opportunities and impose many other costs on our communities. 

The Legislature also should adopt a resolution asking the federal government to reform the Jones Act, that century-old federal maritime law that restricts cargo shipping to Hawaii and also adds to our high cost of living.

As for tax reform, policymakers should be looking for ways to reduce the overall tax burden on Hawaii families, not increase it.

Which taxes should be cut? 

Our state income tax rate is among the highest in the country, for starters. Then there’s the regressive general excise tax, which seems to attract proposed surcharges like flies to honey. In fact, surcharges and fees seem to abound this time of year, when every new proposed program or infrastructure improvement comes with a new tax or fee that will fund it.

That could be the most worrisome element of the governor’s State of the State Address. Ige is aware of the $88 billion in liabilities that the state is facing over the next 30 years, but his proposed solution to that financial crisis includes new projects and programs that will need funding. That means more financial obligations and more taxes, at a time when we should be looking at ways to reduce that $88 billion debt. 

Spending, debt and taxation are not the path to a lower cost of living. On the contrary, they’ll make the state even more expensive to live in.

It’s good to see that our governor wants to reduce our cost of living. He has the right diagnosis, but the wrong prescription. What ails Hawaii is too much government and too much spending. The last thing we need is more of the same.

E hana kakou! (Let's work together!)

Keli'i Akina, Ph.D.
President/CEO