The honeymoon is over; what about our tax cuts?

by Keli'i Akina, Ph.D., President / CEO Grassroot Institute of Hawaii

Wednesday was Gov. Josh Green’s 100th day in office, and I think it’s safe to say his honeymoon period with voters and the Legislature has come to an end. 

When he took office in January, the state was looking at a budget surplus of about $2.6 billion, and there was a lot of excitement about his proposal to hand Hawaii taxpayers what his administration said would be “the largest tax reduction in the history of the state.” 

But now, with a recession looming, the job market flattening and inflation continuing to eat away at our purchasing power, the initial flurry of excitement for the governor’s bold “Green Affordability Plan” has faded and some politicians are even suggesting that Hawaii cannot afford tax cuts right now. 

The implication is that the state will need its surplus cash more than Hawaii taxpayers, who are so strapped by Hawaii’s high cost of living that they have been leaving the state in droves over the past six years.

The result is that Green’s GAP plan is in danger of being watered down as legislators narrow their focus to just a few of the governor’s proposed tax credits. 

Meanwhile, the governor and mayors have not been shy about bigger budgets and spending requests. Green recently rolled out a plan that involves more than $1 billion in additional spending; Honolulu’s budget is up by 6.3%; and Kauai is contemplating a 20% budget increase. 

No doubt these ballooning budgets are being justified by the fact that tax revenues are still healthy. But the fact is, even with the reduced revenue projections, the state is still expected to have a surplus. 

In addition, this year’s higher real estate assessments guarantee more tax revenues for the counties, and the tax relief proposed thus far would be either only temporary or still less than the expected increase.

In other words, our lawmakers have money to play with and they don’t want to give it up. 

But a look at the economic forecast makes it clear that playtime is over. If Hawaii lawmakers really want to help residents weather the coming economic storm, they need to provide relief to their constituents now — and not through new “free” programs or massive government housing or entertainment projects.

A recession is exactly the time to cut taxes and regulations. Not only do tax cuts help people directly by letting them keep more of their money when they really need it, they also send the signal that Hawaii is open for business.

Given that we have been experiencing an exodus of entrepreneurs and professionals for more than half a decade now, that’s a signal that is long overdue.

I often say that there is never a good time to raise taxes, and that’s true. But the inverse is also true: There’s never a bad time to cut taxes. When the state is facing economic uncertainty, a tax cut is one of the wisest moves that our leaders can make.

Unfortunately, the governor’s campaign proposal to exempt food and medicine from the state general excise died a long time ago. And his “Green Affordability Plan” has now been split into several bills, so who knows which — if any — of them will survive. 

We’ll find out more about his tax plan at a pair of events hosted next week on Maui and Oahu by the Grassroot Institute of Hawaii. But if I had to pick just one of the bills to succeed, it would be HB954 HD2, which would increase the personal and standard deductions for the state income tax and index both of them to inflation. 

The rest would create or increase a litany of targeted tax credits, and as I’ve said before, tax cuts are much better than tax credits, which do not provide immediate relief, require a lot of paperwork and often go unclaimed.

Without vocal support for real tax cuts, the most important part of the governor’s “affordability” plan will be lost. His tax reform proposals, which he described as “audacious,” were supposed to help everyone. But now, maybe not so much.

That’s why it falls on us to demand good fiscal leadership from our elected officials. We must reach out to those who make the decisions about budgets and tax cuts and let them know that a possible recession calls for restraint. 

With sound budgeting, reduced regulations and a few good tax cuts, Hawaii could come through a recession with flying colors and easily find itself on the road to prosperity.

E hana kākou! (Let’s work together!)