by Lowell L. Kalapa, Tax Foundation of Hawaii

Taxpayers should know that it is not only the Tax Review Commission that is eyeing ways to raise additional revenues, but also various special interest groups who have been frustrated by cuts to a variety of programs over the past few years as the economic recession took its toll on state tax revenues.

While lawmakers like to blame the poor economy for all the cuts they had to make to the state operating budget, they are by no means without blame for the decline of tax revenues.  Perhaps believing that the euphoric high brought on by the rapid recovery after 9/11 gave them license to go where no man had dared to go in the past, lawmakers thought they could determine the economic destiny of the state by providing incentives to grow what they believed were the promises of tomorrow insofar as jobs and economic growth.  While advocates of tax incentives argued that they would diversify the economic base and create jobs in the future, the underlying reason for such support boiled down to nothing more than self-interest.

Instead of unifying the community on a common goal, those tax incentives segmented the community into silos of special interests where businesses and industries sought to preserve and protect those special goodies at the expense of all other taxpayers.  At the height of the high technology tax credit bonanza, it was pure heresy if one should criticize the tax credit.  Even now, no one dare question the tax credits for film makers in the wake of productions like “The Descendants” which drew a wave of enthusiasm from across the globe, not so much for the plot or the story told as much as for the display of paradise and the natural beauty that is Hawaii’s alone. 

The problem is that most observers, lawmakers included, don’t seem to make the connection that the tax incentives handed out for high technology, film production, or biofuel development come at an expense to the state treasury and all other taxpayers who are not so favored with a tax incentive.  The result is a shortfall in the resources needed to keep vital state services and programs funded.  And, of course, when lawmakers can’t find enough spending cuts that they can push through, they have turned to raising taxes. 

That’s what is wrong with the approach that the current Tax Review Commission has taken by asking their consultants to project what it will cost to fund the current level of services some ten or twenty years into the future.  That directive assumes that the programs and services currently provided cannot be reduced or be provided in a more efficient manner.  The Commission seems to have overlooked the fact that it is not their kuleana to decide what services and programs are to be provided now or into the future.  That decision is solely the responsibility of policymakers or legislators. 

Instead of examining whether or not some of the recent efforts by lawmakers to raise additional revenues were fair and equitable, or for that matter evaluating whether or not many of the tax credits and other tax incentives over the past decade were effective in accomplishing their much touted goals, the Commission seems to have decided that, “if there’s not enough revenue in the forecast, go try increasing taxes to fill that shortfall.” 

That perspective ignores the possibility that the people of Hawaii want or need all of those programs and services currently being provided.  It also ignores whether or not the burden of taxes and fees being borne by current taxpayers is at all appropriate.  Even the consultants have admitted in their midterm report that Hawaii, unlike many other states like Colorado and California, is not constrained by such initiatives as Proposition 13.

However, it is obvious that what the study will produce will have serious credibility problems especially when the consultants do not seem to be very familiar with nor seem to have done their homework in learning about Hawaii’s tax system.  When the consultant declared that Hawaii has one of the lowest fuel tax rates in the nation while every other survey ranks Hawaii’s fuel tax rates to be the fourth highest in the nation, one has to question the credibility of their review. 

Taxpayers should be concerned about the direction that the Tax Review Commission has taken as a review of the “cost drivers” of state spending is NOT a review of tax policy nor is it an evaluation of the state tax system.  As noted earlier, the direction the Commission is taking is nothing more than a set-up of taxpayers for continuing tax increases down the road.  Given that it is generally acknowledged that Hawaii has one of the heaviest tax burdens in the nation, further increases in the burden could have dire consequences.  So taxpayers and lawmakers should beware!

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