We can do more to help Hawaii businesses rebound

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

The good news is that Hawaii’s economy “overall” has fully recovered from the coronavirus lockdowns — at least according to Eugene Tian, chief economist of the Hawaii Department of Business, Economic Development and Tourism.

But I don’t remember people cheering about how wonderful the local economy was before COVID-19 hit. In fact, Hawaii’s anemic economic growth — the second slowest in the country — should be a sign that we haven’t done enough to help local business rebound from the lockdowns.

If anything, it seems we’re doing the opposite. The major tax hikes that are still alive in the current legislative session all promise to be significant burdens on local businesses.

For example, HB202 would increase the unemployment contribution tax on businesses by redefining what comprises a healthy “adequate reserve fund” of the state’s unemployment insurance program.

The bill would increase the reserve level to 150%, up from its current 100%, thus automatically and significantly bumping up how much Hawaii businesses would have to pay into the fund.

Then there’s HB476, which would increase the state’s capital gains tax by an as-yet-unspecified amount. Not only is the blank amount worrisome, but capital gains taxes are associated with slow economic growth, especially because they discourage diversification and the movement of capital in the state.

Is that what we want? I don’t think so. It’s certainly not what we need.

And finally, there are the proposals still alive to increase the state’s transient accommodations tax, imposed on people who stay at local hotels or other short-term rentals.

Supporters of two bills in particular, SB1396 and HB504, say the TAT funds collected would be used for environmental programs. But taxes always have unintended consequences. In this case, they would be the likely negative effects on Hawaii’s leading industry, tourism.

Research indicates that increases in tourism taxes can cause visitors to spend less on tourism-related services and activities other than their accomodations, or simply not travel to a destination at all. Either outcome would be bad for Hawaii tourism and everyone in the state who derives their incomes from visitor spending, whether directly or indirectly.

Instead of trying to wring more tax dollars out of the people who help fuel our state’s economy, we should be looking at ways to make the state more attractive to investors and entrepreneurs. This would facilitiate real economic growth, increase job opportunities, help lower our cost of living and even produce more tax revenue for our state and county governments.

Let’s set aside all this talk about increasing tax rates for a while — if not forever — and focus on making Hawaii a place where we all can thrive and prosper, including businesses.

E hana kākou! (Let's work together!)