Tax policy should be equitable and not hinder economic growth

As another legislative session looms on the horizon, some lawmakers are searching for ways to stimulate the still stumbling economy.

Although Hawaii has had a good year for tourism, the state’s main economic engine, there are indications that the kind of growth witnessed over the past year will be difficult to sustain. Sensitivity to rising room rates and international competition for that visitor dollar reinforces the caution embraced by many industry leaders. Given the many factors that could determine how well the visitor industry does in coming years — airline seat capacity, exchange rates and the health of the global economy, for example — 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, more often than not, Hawaii’s business climate tends to end up at the bottom of the pile. Yet, by all measures and standards, Hawaii continues to be a capital-short state. This means that Hawaii needs constant infusions of capital — money — to create jobs and financial prosperity to keep the economic engine humming.

While some lawmakers will look for a “quick fix,” such as a tax credit or tax exemption for a favored activity — high-technology, bio-fuel production, electric cars or solar heating devices, for example — 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 to pay for the gimmick, but also to keep government running. As a result, the high tax burden remains a major deterrent to attracting capital and businesses to Hawaii.

Then, there are the regulations — the hidden cost of doing business in Hawaii. These include 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 forms to do things such as pay taxes or report 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 designed to trip up the employer at every turn.

If lawmakers want to do something to stimulate economic activity and attract investors to Hawaii, they need to do everything they can to streamline the process of setting up a business and complying with the myriad of laws and regulations with which they must contend. 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 with businesses attempting to set up shop, instead of acting like a regulator, might induce more businesses to expand and improve their workplaces. Too often, businesses shy away from renovations or improvements knowing they will have to deal with the costly and time-consuming process of securing the necessary permits. Time is wasted waiting to secure the final approval for occupancy when one type of inspection cannot be done until another is completed, thus delaying the business’ opening.

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. Consumers then end up paying for the inefficiencies of government regulation. All taxpayers have an interest in reducing the costs imposed by government as they 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 determining whether or not there will be a vibrant economic future for Hawaii.

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