Editorials
Friday, October 24, 1997THE Hawaii Economic Revitalization Task Force has produced a laundry list of recommendations but the key ones deal with taxes. The basic assumption is that tax reduction is the best thing the state can do to stimulate the stagnant economy, and that is probably correct. The question is whether the steps suggested are the best ones and whether the impact on state revenues will be large enough to force unacceptably sharp cuts in government programs. Tax reduction is key
to sparking economy
Governor Cayetano, who warned earlier that massive tax cuts could have a devastating effect, asserts that the state can absorb the estimated $100 million revenue decrease in the first year of the proposal -- reaching $250 million in three years -- without undue pain. If the numbers are right, fine. We aren't sure.
The theory is that a growing economy will generate more tax revenues and provide as much or more money for the state than before the tax cuts. But that would take time, and in the meantime important programs might suffer if the immediate loss of revenue was severe. Moreover, the level of taxation is only one of several factors in the state's economic health. There are no guarantees that tax cuts will produce prosperity. Even so, this is clearly the right direction to be going in. After three years of fiscal austerity, the state might find further belt-tightening difficult, but it should be done within reason.
To its credit, the task force proposed elimination of pyramiding in the general excise tax, which makes the overall effect considerably greater than the 4 percent the consumer eventually pays. The pyramiding is a major factor in Hawaii's high cost of living. However, the task force blurred this picture by recommending an increase in the tax to 5.35 percent. With proposed tax credits for local residents, the idea is to shift more of the burden to tourists and help pay for the proposed income tax cuts. But it's confusing. There is also a question whether, combined with an increase in the hotel room tax, it would not create a backlash from tourists and hurt business. The combination would substantially increase taxes on visitors.
The hotel room tax would rise from 6 to 7 percent. The deal is that part of the proceeds would be used for increased spending on tourism promotion -- $60 million worth, with a fixed proportion of the tax revenue dedicated to that purpose. No increase in taxes is welcome, but the visitor industry seems willing to accept it in return for more funding for promotion.
The recommendations to cut the corporate and personal income tax rates could improve the business climate, but will benefit upper-income people more than the rest of the population. A better idea would have been to raise the income level at which the top personal income tax rate of 10 percent kicks in, thereby sparing people at the lower end.
Despite our caveats, the task force deserves credit for its willingness to face the need for tax relief. If it did nothing else, this would have justified its efforts. How these proposals will fare in the Legislature, however, is highly uncertain.
ON other matters, the group revisited old battlegrounds with its calls for abolition of the state Land Use Commission and replacement of the elected state Board of Education with county boards appointed by the governor and the governor appointing the superintendent of schools. These are good ideas that have been shot down previously. We wish them luck but are not sanguine about their prospects. The same can be said about the proposed goal of securing a major-league sports franchise within 10 years -- unlikely, to say the least. A more attainable goal is giving the University of Hawaii more autonomy, which seems essential to enable it to attain a higher degree of excellence.
It would be great to have this recommendation implemented: Require that all permits, approvals and licenses have a maximum period for review and approval. If no action was taken within that period, approval would be automatic. Forcing bureaucrats to meet such deadlines could make government work like it should. Not likely to happen.
Eliminating the duplication of services by the state and the counties is a no-brainer, and anything but a new idea, but putting it into practice has been an agonizingly slow process because of the turf battles involved. Good luck on that one, too.
The task force claimed to have the support of all members, but it is difficult to believe that UPW chief Gary Rodrigues concurred in one important proposal: "Support cost-efficient government services through managed public-private competition." In other words, privatization of government services.
Rodrigues has made a name for himself by fighting privatization -- and very successfully thus far. Privatization can be a way of making government more efficient, but achieving it in a state where government-employee unions are so powerful will require more courage than most of our politicians display.
THIS is by no means the first group of distinguished private citizens who were asked to recommend ways to improve Hawaii. Unfortunately, previous reports of such groups have been for the most part quickly forgotten. This report may be different, because many people are sufficiently concerned about the condition of the economy and are convinced that change is needed. Much will depend on how much political capital the governor, the Senate president and the speaker of the House are willing to invest in these recommendations.
Cayetano clearly intends to use the report as ammunition for his re-election campaign, which is the reason he didn't invite Jeremy Harris or Linda Lingle and the other county mayors to participate in the task force. But much will depend on the reception the recommendations get in the Legislature.
Despite the co-sponsorship of this effort by Norman Mizuguchi and Joe Souki, enthusiastic endorsement of all of the proposals by the legislators isn't going to happen. However, even half a loaf would be cause for celebration.
Read the full text of the task force
recommendations in our Specials section.
Rupert E. Phillips, CEO
John M. Flanagan, Editor & Publisher
David Shapiro, Managing Editor
Diane Yukihiro Chang, Senior Editor & Editorial Page Editor
Frank Bridgewater & Michael Rovner, Assistant Managing Editors
A.A. Smyser, Contributing Editor
