Hawaii Tax Foundation: How Do You Improve the Business Climate and the Economy?

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BY LOWELL L. KALAPA Hawaii, like the rest of the nation, continues to stumble along as the recession wears on with apparently little change. Although Hawaii’s downturn was not as serious as many states on the mainland where the subprime mortgage market collapsed and literally froze the credit markets, because Hawaii’s major industry, tourism, is highly dependent on external markets, the economic downturn took its toll.

Nevertheless, Hawaii’s businesses and their employees continue to struggle as hours are cut or positions are eliminated altogether. While certainly this is due in large part to the national and global economic crisis, staying in business, let alone starting a new business, is a daunting task here in Hawaii due in large part to the highly taxed and over-regulated environment that has been created by elected officials.


The recent real property tax fiasco in Honolulu underscores the heavy burden borne by businesses. When real property tax officials changed the categories in which certain properties had been assigned because it was in residential use or partial residential use, homeowners and renters cried foul. However, what this fiasco did highlight is the fact that non-residential properties are being taxed three or four times as much as residential properties perhaps on the same square footage of property.

And while elected officials argue that businesses that are located on commercial and industrial property can recover that higher property tax bill by passing it on to their customers, who do they think those customers are? They are you and I. So we end up paying lower property taxes on our homes but we end up paying higher prices at the grocery store or the department store because the cost of the higher tax is recovered in the price of the bag of rice or the aloha shirt you purchased yesterday.

What that shift in the tax burden does is to hide the high cost of running the county to the point that homeowners, landlords and tenants believe that with the property tax burden so low, more services can be had from county government. In fact, it is interesting to note that the former head of the City and County when asked if he would consider raising the general excise tax noted that the issue would have to be revisited especially if voters wanted more services. Well, when the true cost of running county government is hidden in the cost of a loaf of bread and the real property tax on my house is so small relative to my income taxes, sure, why not ask for more services. That is certainly being less than honest about how much government truly costs us as taxpayers.

Similarly at the state level, elected officials delight in imposing new fees and regulations on this or that activity all in the name of making our environment and community a safer place to live. Because many of these new taxes and fees are imposed on businesses that provide goods and services to us as consumers, we do not see those costs as they are imposed indirectly on the businesses we patronize. With everything from the cost of getting building permits to health permits to the cost of fuel that gets the building materials to our local hardware store or to the site of a new home, government has managed to find ways to increase those costs.

Oh, but you say, we need more health inspectors to ensure the safety of our food and e-u-h, with those ugly and dirty rats running through the produce in Chinatown we need those fees to pay for those inspectors. Well, you have to ask yourself how were those inspectors paid before those rats began appearing. Those inspectors were paid out of the general fund, out of your income tax and the general excise tax. But over the years lawmakers have utilized those funds for other favorite projects like providing tax incentives for high technology companies and for film productions because those tax incentives are also paid out of the general fund which was also used to pay for those inspectors.

The fact of the matter is that elected officials have lost the ability to set priorities because they have no clue what is paramount for the health and safety of our community. Very few of our lawmakers have any life experience let alone held a real job. And don’t let those lawmakers who list having been a legislative aide as a job fool you because the Legislature is a fantasy in itself.

Today, in fact, few in the legislative arena have any clue what a struggle it is to remain in business and to make a profit – oh, that’s a dirty word – so that you can stay in business. So as the elections approach think hard about the candidate for whom you will cast your vote. Do they really understand how difficult it is to make ends meet in Hawaii? Have they ever run a business or held a “real” job like you?

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





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