Tax policy should be equitable and not hinder economic growth

As another legislative session looms large on the horizon, there are those who are searching for ways to stimulate the economy as it appears that both the state and national economies continue to stumble along.

Although Hawaii has had a good year insofar as its main economic engine, tourism, there are indicators that it will be difficult to sustain the kind of growth witnessed over the past year. Sensitivity to rising room rates and international competition for that visitor dollar reinforce the caution embraced by many industry leaders. Given that there are so many factors that could determine how well the visitor industry does in the coming years – like airline seat capacity, exchange rates and the health of the global economy – nothing is certain in the fortune teller’s cards.

To say the least, Hawaii has a less than stellar reputation as a place to do business, as evidenced by a number of recent rankings. In fact, Hawaii, more often than not, tends to end up at the bottom of the pile insofar as business climate. Yet by all measures and standards, Hawaii continues to be a capital-short state. And for those who don’t understand what it means to be a capital-short state, it means that Hawaii needs constant infusions of capital – read money here – in order to create jobs and financial prosperity to keep the economic engine humming.

While some lawmakers will look for a quick fix like a tax credit or a tax exemption for a favored activity – be it high technology, biofuel production, electric cars or solar heating devices – taxpayers have come to learn that those gimmicks produce little in return for their high cost. And high cost means that all other taxpayers must pick up the tab not only for the cost of the gimmick, but also for the cost to keep government running. As a result, the tax burden remains high, a major deterrent to attracting capital and, therefore, businesses to Hawaii.

Then there is the hidden cost of doing business in Hawaii – regulations – everything from building permits to licensing and compliance with the various rules that govern doing business in Hawaii. Opening up shop in Hawaii means more than unlocking the front door and turning on the lights. It means filling out a plethora of paperwork for paying taxes to reporting the employment of workers. It means securing mandatory prepaid health care insurance and dealing with workers’ compensation insurance and claims that may be filed. While many of these requirements were adopted in the interest of health and safety in the workplace and job security for workers, they now form a maze with bumps in the road that are designed to trip up the employer at every turn.

If lawmakers truly want to do something to stimulate economic activity and attract investors to set up business in Hawaii, then they need to do everything they can to streamline the whole process of setting up a business and complying with the myriad laws and regulations with which businesses must contend. Perhaps lawmakers might even consider getting rid of a few of those regulations or consolidating some of the information that is collected each month from employers.

At the county level, streamlining of the permitting process and working cooperatively with businesses attempting to set up shop instead of acting like a regulator might, in fact, induce more businesses to expand and improve their workplaces. Too often, businesses shy away from renovations or improvements, knowing all too well that they will have to deal with the costly and time-consuming process of securing the necessary permits.

Some of the delays are also often due to delayed inspections to secure the final approval for occupancy because one type of inspection cannot be done until another is done, thus delaying the opening of a business.

Those frustrating delays cost businesses money, a cost that must be recovered in the shelf price of the goods or services provided by that business. We, as consumers, end up paying for the inefficiencies of government regulation. Thus, all taxpayers have an interest in reducing the costs imposed by government as those costs contribute to the high cost of living and doing business in Hawaii.

As lawmakers prepare for the 60-day marathon legislative session, they should focus on ways to reduce the costs imposed on businesses and all taxpayers. Improving the business climate will be key to whether or not there will be a vibrant economic future for Hawaii.

* Lowell L. Kalapa is president of the Tax Foundation of Hawaii.