Getting by with a little help from our friends

By Keli'i Akina, Ph.D., Grassroot Institute, September 26, 2022

Greetings from 35,000 feet! Through the clouds below me, the Great Plains are rolling by. This bird’s-eye view of our nation is a metaphor for how my colleagues and I at the Grassroot Institute have spent the past week.

Over the last several days, we have been meeting with members of other state think tanks, talking about new policy ideas, being briefed on new research and learning new strategies. Now, we are headed home, bringing new resources to the table in our efforts to to make Hawaii more prosperous and free.

You might be wondering why it’s important to know what other state think tanks are doing. The answer is simple: America’s federalist system — the famed “laboratory of the states”— is how we learn what works in the policy world, as well as what doesn’t.

It would be overwhelming to list all the lessons we gleaned from other states and municipalities over the past few days, but there are a few that really stand out, such as:

>> North Carolina’s tax-based economic turnaround. In 2010, North Carolina had the 11th worst business climate in the country, an unemployment rate of 10.6%, a poverty rate of 17.4% and a below-average median household income. Its personal income and corporate income tax rates were the highest in the region, its ballooning budget had created a $3 billion shortfall and $6.5 billion in debt, and its rainy-day fund was a paltry $150 million.

Fast forward to 2022: North Carolina has the 15th best business climate, unemployment has dropped to 3.7%, its poverty rate has dropped to 13.1%, and between 2013 and 2018 its median household income increased by 29.5%, far outpacing regional and national averages. Its budget growth has slowed dramatically, and the state is on pace for its sixth straight year of budget surpluses. Its debt has been reduced by 35%, and its rainy day fund is up to $1.2 billion.

What made the difference?

It goes back to 2013, when the state began implementing bold and courageous tax reforms. Foremost, it established a declining flat personal income tax rate to replace its three-tier system which topped out at 7.5%. In 2014, the flat rate debuted at 5.8%. It is now down to 5.25% and by 2027 will drop to 3.99%.

Similarly, the state lowered its corporate income tax rate from 6.9% in 2013 to 6% in 2014. It now stands at 2.5% and is scheduled to decline to zero by 2030.

As the national Tax Foundation recently noted: “Before the 2013 reforms, North Carolina had the highest individual and corporate income tax rates in the Southeast. Today, North Carolina has the lowest corporate rate and among the more competitive individual rates. When the 2021 reforms are fully phased in, North Carolina’s individual income tax rate will have been cut nearly in half between 2013 and 2027.”

>> Ohio’s bold regulatory reforms. Ohio is the third-most regulated state in America, and its many confusing and often contradictory regulations are especially burdensome for small businesses, causing them to lose time and money.

But that’s all about to change. This year, Ohio passed Senate Bill 9, which requires state agencies to reduce unnecessary, duplicative or outdated restrictions by 30% by 2025. If that goal is not achieved, two regulatory restrictions will have to be removed before a new one can be added.

Supported by a coalition of small business groups and think tanks such as the Ohio Freedom Foundation and the Buckeye Institute, the bill also allows a legislative panel to recommend invalidation of rules that cannot be justified, and creates a “Cut Red Tape” website that lets businesses communicate directly with agencies about regulatory restrictions.

Having recognized the harm that regulations do to small businesses and job creators, Ohio is fixing that problem in a way that will help the economy while still protecting the public.

>> Georgia’s accounting for housing regulation costs. Hawaii isn’t the only place where residents are experiencing ever-increasing housing prices. Georgia residents also are wondering why housing prices are so high, which is why our fellow policy research organization, the Georgia Public Policy Foundation, launched a study of how much regulations add to the cost of homebuilding in the state.

After surveying homebuilders and considering regulations at the local, state and federal levels, the report found that regulatory costs during the lot-development phase account for 11.3% of the final price of a home in Georgia, while regulatory costs during the construction phase account for 15.6%.

Combined, that means that 26.9% of the final price for a new single-family home in Georgia is due solely to government regulation — higher than the national average of 23.8%. In other words, government is contributing to the housing crisis, not just in Georgia, but in Hawaii as well.

As you can see, taxes, regulation and housing costs aren’t just problems in Hawaii. They are major issues in other states as well, and we can benefit from the lessons learned by those other states to propose reforms that will work for Hawaii.

In the spirit of “E hana kākou” writ large, the Grassroot Institute of Hawaii is working with experts around the country to create a better Hawaii.