How To Rescue Hawaii’s Economy Without Raising Taxes

by Keli‘i Akina

Gov. David Ige has penciled out a budget built on billions of dollars of debt and possibly higher taxes, with high hopes that a federal bailout will save the day. But while he’s waiting to see if the federal money spigots open, we should be looking for ways to revive the economy now, without relying on Uncle Sam to clean up after us — and without raising taxes.

Clearly, there is no easy way to deal with the economic depression caused by the nearly year-long coronavirus lockdowns but trying to extract more taxes from Hawaii’s already struggling residents shouldn’t be an option. Even the governor said recently, “The last thing we want to do is raise taxes during an economic downturn.” Whether he was sincere is another issue, especially since his budget suggests differently.

To his credit, the governor has found places to reduce spending. But more needs to be done. Even before the COVID-19 depression, Hawaii’s budget was headed for a fiscal cliff. Now more than ever, we need to reduce state spending, roll back regulations and possibly impose a tax freeze. This would spur all sorts of productive economic activity, which in turn would generate tax revenues the state so badly needs to put its house in order.

For the first time in history, Hawaii is borrowing to balance its budget. Of course, that’s a misleading way of using the word “balance.” It’s like telling people you’ve balanced your household budget because you’re planning to put the utilities bill on your credit card. You haven’t really “balanced” anything. You’ve just put the problem off for another, more expensive day.

Unfortunately, that same kind of wishful thinking is evident throughout the governor’s new budget. Look at the estimated state revenues for fiscal 2023 to 2027 and you’ll find about $1 billion worth of “other revenues” spread out over that period. What revenues? Where are they coming from? The governor’s team won’t explain what these “other revenues” are supposed to be or identify their source. Since it’s unlikely that we’ll discover a money tree on the Capitol grounds, the source of these “other revenues” inevitably will be Hawaii’s taxpayers.

Already, whispers of a coming tax hike are creating more stress and worry for local businesses and residents. A substantial automatic hike in the unemployment tax is already scheduled for this year, and even if delayed will be a burden for years to come.

In addition, there is the increased debt that will occur if payments are deferred to the state’s Employer-Union Health Benefits Trust Fund (EUTF), which pays health benefits to Hawaii’s 115,000 active and retired government employees and their dependents. The most recent estimate is that skipping those payments for the next five years would cost Hawaii taxpayers an extra $8 billion.

Our best options under such circumstances are, again, to tighten our spending belts and loosen the binds on productive economic activity.

For example, to trim the state budget we could shift some government functions to the private sector, eliminate subsidies to favored industries such as tourism, and delay indefinitely large projects likely to be a financial drain, such as the new Aloha Stadium.

To foster economic productivity and prosperity, we need to reduce economic regulations that restrict employment, limit competition, discourage investment, obstruct new housing and in many other ways deny Hawaii residents the opportunity to pursue their dreams and prosper.

Our leaders simply must focus on ways to make Hawaii more attractive to entrepreneurs, businesses and workers, which they can do by increasing economic freedom. Let people get back to work so they can once again be productive, and thereby generate the taxes needed to help our policymakers bring our state budget back into line.

These are things we can do — without raising taxes — to rebuild our economy on something more concrete than just wishes and hopes.

KELI‘I AKINA, PH.D., is president and CEO of the Grassroot Institute of Hawaii, an independent nonprofit research and educational organization devoted to increasing opportunity and prosperity through individual liberty, economic freedom and accountable government.