Securing Hawaii’s Economic Future

by Lowell L. Kalapa, Tax Foundation of Hawaii

In the past few weeks we have looked at the financial and economic crisis facing the nation and what can and should be done to pull the country out of recession and put the government back on sturdy financial footing. The answer is quite simple but seemingly difficult for our political leaders to accept and implement, that is, to rein in government spending and to allow the free-market economy to grow unbiased by onerous government regulations.

Here in Hawaii the same lesson applies. State and county governments need to tighten their collective belts and pull back on promising constituents everything they request. Government in Hawaii must also realize that the world has moved into the 21st Century where technology now allows us to use machines instead of manpower to do a lot of the repetitive work. This means that the public work force can shrink without impairing the delivery of the services we need or redirecting the workforce to do other tasks as the population to be served grows.

An example of the use of technology which maintained workforce numbers but served even more consumers is Honolulu’s automated trash collection service. In the old days it took a minimum of three persons to collect the City’s trash - one truck driver and two to actually pick up the garbage cans and toss the garbage in the back of the truck. Today each collection vehicle needs only one person, the driver, who with technology and automation can now pick up the garbage cans and drive the truck at the same time.

So it is not like government will come to an end or that the public union membership rolls will shrink. But reining in spending can also mean spending what tax dollars are given to government wisely and that less dollars does not automatically translate into less services. What it does mean is that there will be a lesser demand to raise taxes because how those services are being delivered is more efficient. It means not saying “no” to change. It means doing things differently.

And, yes, much as we like to joke about it, the culture in the public sector is maintaining the status quo. But believe it or not, it is more common than not to find resistance to change in state and county government across the islands. Okay, there will be those that deny that they are unwilling to change, but just the other day there was an administrator dressed in jeans cleaning out vacant offices because her employees refused to acknowledge that their division was going to be forever downsized.

While the public employee unions may resist the shrinking of the public workforce because it spells less membership dues, their leaders should be just as aware that taxpayers have reached the boiling point and will not tolerate more increases in the tax burden just so public employees can maintain the status quo. With fewer employees to share what limited resources there will be in the future, the likelihood of better wages becomes more realistic.

On the other side of the ledger, taxpayers have to keep a close eye on policymakers who think they have the magic bullet to shaping Hawaii’s economic future. As taxpayers have seen, policymakers have literally given away the store by providing all kinds of tax incentives in the belief that they had the magic bullet that would “create high paying jobs” and bring Hawaii’s “brightest and best minds” back home. Unfortunately, all those bright ideas to provide tax incentives did was to shift the burden of taxes to others, or as was the case in the past two years, to raise those taxes even higher as the drain of those tax incentives took their toll on tax collections and in many cases on businesses and jobs.

Those who were not so fortunate to take advantage of many of these tax incentives can tip their hats to those who did take advantage of the tax credits and other tax breaks as they laughed all the way to the bank. Until those incentives were adopted, Hawaii’s tax system was a well-balanced and productive tax system. Had those incentives not been adopted, taxes probably would not have suffered as they did.

Hawaii went through similar economic downturns in the 1970’s, 1980’s, and the 1990’s and was able to survive all dislocations without a major tax increase like those that were adopted in the last two years. Thus, taxpayers need to keep vigilant to insure that policymakers don’t continue to manipulate the tax system in the name of insuring Hawaii’s economic future.

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